ARMA INC. Comparative Balance Sheets December 31 Assets 2010 2009 Cash $ 89,168

ID: 2350809 • Letter: A

Question

ARMA INC.
Comparative Balance Sheets
December 31

Assets 2010
2009

Cash $ 89,168 $ 48,518
Accounts receivable 91,685 32,159
Inventories 112,782 102,882
Prepaid expenses 28,388 25,318
Investments 137,057 114,080
Plant assets 270,545 241,263
Accumulated depreciation (49,630)
(51,349)

Total $679,995
$512,871

Liabilities and Stockholders' Equity
Accounts payable $111,584 $ 67,419
Accrued expenses payable 16,289 17,004
Bonds payable 121,000 149,300
Common stock 219,560 174,180
Retained earnings 211,562
104,968

Total $679,995
$512,871

ARMA INC.
Income Statement
For the Year Ended December 31, 2010

Sales $392,266
Less:
Cost of goods sold $134,743
Operating expenses, excluding depreciation 12,788
Depreciation expense 45,272
Income taxes 27,170
Interest expense 4,617
Loss on sale of plant assets 6,761
231,351

Net income $160,915

Additional information:

New plant assets costing $84,384 were purchased for cash during the year.

Old plant assets having an original cost of $55,102 were sold for $1,350 cash.

Bonds matured and were paid off at face value for cash.

A cash dividend of $54,321 was declared and paid during the year.

Prepare a statement of cash flows using the indirect method.

Explanation / Answer

Cash flows from operating activities

Net income

160,915

Adjustments to net income

Depreciation

+45,272

Loss on sale of plant assets

+6,761

Increase in AR

-59,526

Increase in inventories

-9,900

Increase in prepaid expenses

-3,070

Increase in AP

+44,165

Decrease in accrued expenses

-715

Net cash provided by operating activities

183,902

Cash flows from investing activities

Purchase of plant assets

-84,384

Sale of plant assets

+1,350

Investments

-22,977

Net cash used by investing activities

-106,011

Cash flows from financing activities

Retirement of bonds

-28,300

Dividends paid

-54,321

Sale of common stock

+45,380

Net cash used by financing activities

-37,241

Net increase in cash

40,650

Cash balance at prior year end

48,518

Cash balance at current year end

89,168