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

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:

Net income, $116,840.

Depreciation reported on the income statement, $29,470.

Equipment was purchased at a cost of $57,170, and fully depreciated equipment costing $15,920 was discarded, with no salvage realized.

The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.

5,000 shares of common stock were issued at $18 for cash.

Cash dividends declared and paid, $71,200.

Required:

Prepare a statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Cash $52,120 $64,070 Accounts receivable (net) 80,090 86,380 Merchandise inventory 114,400 107,060 Prepaid expenses 4,660 3,240 Equipment 233,060 191,810 Accumulated depreciation-equipment (60,590) (47,040) Total assets $423,740 $405,520 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $88,990 $84,750 Mortgage note payable 0 121,660 Common stock, $1 par 14,000 9,000 Paid-in capital: Excess of issue price over par-common stock 199,000 114,000 Retained earnings 121,750 76,110 Total liabilities and stockholders’ equity $423,740 $405,520

Explanation / Answer

Yellow Dog Enterprises Inc. Statement of Cash Flows For the Year Ended December 31, 20Y8 Cash flows from operating activities: Net Income: $116,840.00 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation $29,470.00 Changes in current operating assets and liabilities: Decrease in accounts receivable $6,290.00 Increase in inventory -$7,340.00 Increase in prepaid expenses -$1,420.00 Increase in accounts payable $4,240.00 Net cash flow from operating activities $148,080.00 Cash flows from investing activities: Cash paid for Equipment -$57,170.00 Net cash flow used for investing activities -$57,170.00 Cash flows from financing activities: Cash Received from sale of Common stock $90,000.00 Cash paid for dividends -$71,200.00 Cash paid to retire mortgage note payable -$121,660.00 Net cash flow used for financing activities -$102,860.00 Change in cash -$11,950.00 Cash at the beginning of the year $64,070.00 Cash at the end of the year $52,120.00

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