Statement of Cash Flows—Indirect Method The comparative balance sheet of Livers

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows:

The investments were sold for $134,120 cash.

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The common stock was issued for cash.

There was a $80,400 credit to Retained Earnings for net income.

There was a $46,050 debit to Retained Earnings for cash dividends declared.

Required:

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, or any negative adjustments.

Dec. 31, 20Y3 Dec. 31, 20Y2 Assets Cash $300,500 $278,250 Accounts receivable (net) 108,860 99,930 Inventories 307,310 295,880 Investments 0 114,630 Land 157,620 0 Equipment 339,050 261,590 Accumulated depreciation—equipment (79,380) (70,540) Total assets $1,133,960 $979,740 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $205,250 $193,010 Accrued expenses payable (operating expenses) 20,410 25,470 Dividends payable 11,340 8,820 Common stock, $10 par 61,230 48,010 Paid-in capital: Excess of issue price over par-common stock 230,190 133,240 Retained earnings 605,540 571,190 Total liabilities and stockholders’ equity $1,133,960 $979,740

Explanation / Answer

Livers Inc. Statement of Cash Flows For the Year Ended December 31, 20Y3 Cash flows from operating activities: Net income 80400 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation expense 8840 Gain on sale of investments -19490 Changes in current operating assets and liabilities: Increase in Accounts receivable -8930 Increase in Inventories -11430 Increase in Accounts payable 12240 Decrease in Accrued expenses payable -5060 Net cash flow from operating activities 56570 Cash flows from investing activities: Proceeds from sale of Investments 134120 Purchase of Land -157620 Purchase of Equipment -77460 Net cash flow used for investing activities -100960 Cash flows from financing activities: Proceeds from issuance of common stock 110170 Dividends paid -43530 Net cash flow from financing activities 66640 Net increase in cash 22250 Cash at the beginning of the year 278250 Cash at the end of the year 300500

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