Statement of Cash Flows—Indirect Method The comparative balance sheet of Tru-Bui

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Tru-Built Construction Inc. for December 31, 2014 and 2013, is as follows:

The following additional information is taken from the records:

Land was sold for $63.

Equipment was acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $125 credit to Retained Earnings for net income.

There was a $38 debit to Retained Earnings for cash dividends declared.

a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash and for any adjustments, if required.

Tru-Built Construction Inc.

Statement of Cash Flows

For the Year Ended December 31, 2014

Cash flows from operating activities:

  

$  

Adjustments to reconcile net income to net cash flow from operating activities:

  

  

  

  

Changes in current operating assets and liabilities:

  

  

  

  

  

  

Net cash flow from operating activities

$  

Cash flows from investing activities:

  

$  

  

  

Net cash flow provided by investing activities

  

Cash flows from financing activities:

  

$  

  

  

Net cash flow provided by financing activities

  

  

$  

Cash at the beginning of the year

  

Cash at the end of the year

$  

b. Was Tru-Built Construction Inc.'s cash flow from operations more or less than net income?

Dec. 31, 2014 Dec. 31, 2013 Assets Cash $188 $64 Accounts receivable (net) 108 80 Inventories 68 44 Land 154 179 Equipment 87 70 Accumulated depreciation-equipment (23) (12) Total $582 $425 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $73 $64 Dividends payable 12 - Common stock, $10 par 38 20 Paid-in capital in excess of par-common stock 81 50 Retained earnings 378 291 Total $582 $425

Explanation / Answer

b)The cash flow from operation is lower than net income

Cash flow statement Cash flow from operating activity Net Income 125 Adjsutment to reconcile net income to cash flow Depreciation expense [23-12] 11 Gain on sale of land [63- [179-154] = 63-25] -38 Increase in receivable [108-80] -28 Increase in inventory [68-44] -24 Increase in accounts payable [73-64] 9 70 Net cash provided by operating activity [A] 55 cash flow from investing activity sale of land 63 Purchase of equipment [87-70] -17 Net cash flow from investing activity [B] 46 cash flow from financing activity issue of common stock [81+38]+[20+50]=[119-70] 49 Dividend paid [ 38-12] -26 Net cash flow from financing activity [C] 23 Increase /(decrease)in cash   [a+b+c] 124 Beginning cash balance 64 Ending cash balance 188

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