Statement of Cash Flows—Indirect Method Glendive Corp. is in the process of prep

Question

Statement of Cash Flows—Indirect Method

Glendive Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2017. An income statement for the year and comparative balance sheets are as follows:

Dividends of $7,000 were declared and paid during the year. New plant assets were purchased during the year for $195,000 in cash. Also, land was purchased for cash. Plant assets were sold during the year for $25,000 in cash. The original cost of the assets sold was $45,000, and their book value was $30,000. Additional stock was issued for cash, and a portion of the bank loan was repaid.

Required:

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

2. Cash flow from operations computed under the direct method is

For the Year Ended
June 30, 2017

Explanation / Answer

1) Indirect method

Interest exp considered as financing activity.

2) Direct method

Investing and financing activity will be same.

Glendive Corp. Statement of Cash Flows For the Year Ended June 30, 2017 Cash Flows from Operating Activities :- Net Income 33000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 75000 Loss on sale of plant 5000 Interest exp 15000 Increase in accounts rec. (15000) Decrease in inventory 15000 Dncrease in prepaid rent 4000 Increase in accounts payable 7000 Increase in other accrued liability 6000 Income tax (exp of current year) 17000 Actual tax paid (10000+17000-8000) (19000) Net Cash Inflow from operating activity 143000 Investing Activity Land purchased (80000) Plant assets purchased (195000) Plant assets sold 25000 Net Cash Outflow from financing activity (250000) Financing Activity Dividend paid (7000) Common stock issued 150000 Loan repayment (30000) Interest exp (15000) Net cash inflow from financing activity 98000 Net cash flow from all activity (9000) add: opening cash , 30 june 2016 40000 closing cash balance , 30 june 2017 31000

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