Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix) Wabash Cor

Question

Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)

Wabash Corp. just completed another successful year, as indicated by the following income statement:

Presented here are comparative balance sheets:

Other information is as follows:

Dividends of $350,000 were declared and paid during the year.

Operating expenses include $25,000 of depreciation.

Land was sold for its book value, and new plant and equipment were acquired for cash.

Part of the bank loan was repaid, and additional common stock was issued for cash.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 14% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $100,000.

Required:

1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank.

2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate net loss, cash payments, cash outflows, or decreases in cash.

3. During the year Wabash experienced a decrease in cash at the end of the year due to

Explanation / Answer

Cash flow indirect method Cash flow from operating activities Net income 350000 Adjustments to reconcile the net income Depreciation expense 25000 Changes in current asset and liabilities decrease in accounts receivable 85000 Increase in Inventory -20000 Decrease in prepayments 10000 Increase in accounts payable 20000 Decrease in accrued liabilities   -5000 Decrease in income tax payable -35000 80000 Cash flow from operating activities 430000 Cash flow from Investing activities Equipment purchased -250000 Equipment sold Land sold 100000 Cash flow from Investing activities -150000 Cash flow from Financing activities Paid in capital in excess Common stock 50000 Dividend -350000 Long term balnk loan payable -50000 Cash flow from Financing activities -350000 Net Cash and cash equivalent -70000 Add Beginning cash and cash equivalent 210000 Ending cash and cash equivalent 140000

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