Sharp Screen Films, Inc., is developing its annual financial statements at Decem

Question

Sharp Screen Films, Inc., is developing its annual financial statements at December 31, current year. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized as follows:

Additional Data:

A. Bought equipment for cash, $57,850.

B. Paid $11,500 on the long-term note payable.

C. ssued new shares of stock for $34,200 cash.

D. Dividends of $13,650 were declared and paid.

E. Other expenses all relate to wages.

F. Accounts payable includes only inventory purchases made on credit.

Question: Prepare the statement of cash flows using the indirect method for the year ended Dec 31

Current Year Prior Year Balance sheet at December 31 Cash $ 66,650 $ 65,000 Accounts receivable 16,950 23,750 Merchandise inventory 23,750 18,800 Property and equipment 211,050 153,200 Less: Accumulated depreciation (60,700 ) (46,650 ) $ 257,700 $ 214,100 Accounts payable $ 10,700 $ 21,000 Wages payable 3,900 4,300 Note payable, long-term 61,900 73,400 Contributed capital 100,800 66,600 Retained earnings 80,400 48,800 $ 257,700 $ 214,100 Income statement for current year Sales $ 202,000 Cost of goods sold 99,000 Depreciation expense 14,050 Other expenses 43,700 Net income $ 45,250

Explanation / Answer

SOLUTION

SHARP SCREEN FILMS INC.

Statement of Cash Flows

For the Year Ended December 31

Amount ($) Amount ($) Cash flows from operating activities: Net income 45,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 14,050 Decrease in accounts receivable (23,750 - 16,950) 6,800 Increase in merchandise inventory (23,750 - 18,800) (4,950) Decrease in accounts payable (21,000 - 10,700) (10,300) Decrease in wages payable (4,300 - 3,900) (400) 5,200 Net cash provided by operating activities (A) 50,450 Cash flows from investing activities:   Cash payments to purchase fixed assets (57,850) Net cash used in investing activities (B) (57,850) Cash flows from financing activities: Cash payments on long-term note (11,500) Cash payments for dividends (13,650) Cash receipts from issuing stock 34,200 Net cash provided by financing activities (C) 9,050 Net increase in cash during the year (A+B+C) 1,650 Cash balance, January 1 65,000 Cash balance, December 31 66,650

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