On the basis of the following data for Branch Co. for the year ended December 31

Question

On the basis of the following data for Branch Co. for the year ended December 31, 2011 and the preceding year, prepare a statement of cash flows using the indirect method of reporting cash flows from operating activities.
Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000. The stock was issued for cash and the only entries in the retained earnings account were net income of $56,000 and cash dividends declared and paid of $18,000.

Year Year
2011 2010
Cash $65,000 $ 54,000
Accounts receivable (net) 78,000 85,000
Inventories 106,500 90,000
Land -- 20,000
Equipment 495,000 370,000
Accumulated depreciation (215,000) (158,000)
$529,500 $461,000

Accounts payable (merchandise creditors) $ 53,500 $ 55,000
Common stock, $10 par 200,000 170,000
Paid-in capital in excess of par--
common stock 62,000 60,000
Retained earnings 214,000 176,000
$529,500 $461,000

Explanation / Answer

for the Cash Flows for Operating Activities: Net income $56,000 Items to reconcile net income to cash flows for operating activities Depreciation expense $57,000 Loss on sale of land $5,000 Decrease in accounts receivable $7,000 Increase in inventories ($16,500) Decrease in accounts payable ($1,500) Net cash flows for operating activities $107,000 Cash Flows for Investing Activities: Cash paid for equipment purchased ($125,000) Cash received for land sold $15,000 Net cash flows for investing activities ($110,000) Cash Flows for Financing Activities: Cash received for common stock issued $32,000 Cash paid for dividends ($18,000) Net cash flows for financing activities $14,000 Net Increase in Cash $11,000 Cash balance - January 1 $54,000 Cash balance - December 31 $65,000

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