Statement of Cash Flows (Indirect Method) Use the following information regardin

Question

Statement of Cash Flows (Indirect Method)
Use the following information regarding the Lund Corporation to (a) prepare a statement of cash flows using the indirect method and (b) compute Lund's operating-cash-flow-to-current-liabilities ratio.

Accounts payable increase Accounts receivable increase Accrued liabilities decrease Amortization expense Cash balance, January 1 Cash balance, December 31 Cash paid as dividends Cash paid to purchase land Cash paid to retire bonds payable at par Cash received from issuance of common stock Cash received from sale of equipment Depreciation expense Gain on sale of equipment Inventory decrease Net income Prepaid expenses increase Average current liabilities $10,800 4,800 3,600 7,200 26,400 18,000 34,800 108,000 72,000 42,000 20,400 34,800 4,800 15,600 91,200 2,400 120,000

Explanation / Answer

a) LUND CORPORATION

Statement of Cash FLows

For Year Ended December 31 (Amounts in $)

b) Operating Cash Flow to Current Liabilities Ratio = Operating Cash Flows/Average Current Liabilities

= $144,000/$120,000 = 1.20

Cash Flows from Operating Activities Net Income 91,200 Add (deduct) items to convert net income to cash basis Depreciation 34,800 Amortization 7,200 Gain on Sale of Equipment (4,800) Accounts Receivable Increase (4,800) Inventory Decrease 15,600 Prepaid Expenses Increase (2,400) Accounts Payable Increase 10,800 Accrued Liabilities Decrease (3,600) Cash flow provided by Operating Activities (A) 144,000 Cash Flow from investing Activities Sale of Equipment 20,400 Purchase of Land (108,000) Cash used by Investing Activities (B) (87,600) Cash Flow from Financing Activities Issuance of Common Stock 42,000 Retirement of Bonds Payable (72,000) Payment of Dividends (34,800) Cash Used by Financing Activities (C) (64,800) Net Decrease in Cash (D = A+B+C) (8,400) Cash at Beginning of year (E) 26,400 Cash at end of year (D+E) 18,000

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