CP12-3 Preparing a Statement of Cash Flows (Indirect Method) [LO 12-2, LO 12-3,

Question

CP12-3 Preparing a Statement of Cash Flows (Indirect Method) [LO 12-2, LO 12-3, LO 12-4, LO 12-5]

Hunter Company is developing its annual financial statements at December 31, 2015. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

  2015   2014
  Balance Sheet at December 31
     Cash $ 51,740 $ 21,000
     Accounts Receivable 32,400 35,000
     Inventory 35,400 42,000
     Equipment 117,600 108,000
     Accumulated Depreciation—Equipment (39,600 ) (33,000 )

$ 197,540 $ 173,000

     Accounts Payable $ 28,600 $ 25,000
     Salaries and Wages Payable 740 1,000
     Note Payable (long-term) 44,000 54,000
     Common Stock 89,000 66,000
     Retained Earnings 35,200 27,000

$ 197,540 $ 173,000

  Income Statement for 2015
     Sales Revenue $ 106,000
     Cost of Goods Sold 64,000
     Other Expenses 29,400


     Net Income $ 12,600

Additional Data:
a. Bought equipment for cash, $9,600.
b. Paid $10,000 on the long-term note payable.
c. Issued new shares of stock for $23,000 cash.
d. Declared and paid a $4,400 cash dividend.
e.

Other expenses included depreciation, $6,600; salaries and wages, $10,600; taxes, $3,600; utilities, $8,600.

f.

Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:
1.

Prepare the statement of cash flows for the year ended December 31, 2015, using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Explanation / Answer

Statement of Cash flows for the year ended December 31, 2015

Cash flow from operating activities Net income $12,600 Depreciation $6,600 Accounts receivables $2,600 Inventory $6,600 Accounts payables $3,600 Salaries and wages payable -$260 Cash flow from operating activities $31,740 Cash flow from investing activities Purchase of equipment -$9,600 Cash used in investing activities -$9,600 Cash flow from financing activities paid long term notes payable -$10,000 issue of stock $23,000 dividends paid -$4,400 Cash flow from financing activities $8,600 Net increase in cash $30,740 Beginning cash balance $21,000 Ending cash balance $51,740

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