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

Question

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

Peoria 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 $60,000 were declared and paid during the year.

Operating expenses include $50,000 of depreciation.

Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.

The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (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 $50,000.

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. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

2. 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.

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

     

Explanation / Answer

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. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash. Balances Cash Inflows (Outflows) Accounts 12/31/17 12/31/16 Changes Operating Investing Financing Cash $52,000.00 $90,000.00 -$38,000.00 $ $ Accounts Receivable $180,000.00 $130,000.00 $50,000.00 -$50,000.00 Inventory $230,000.00 $200,000.00 $30,000.00 -$30,000.00 Prepayments $15,000.00 $25,000.00 -$10,000.00 $10,000.00 Land $750,000.00 $600,000.00 $150,000.00 -150000 Plant and Equipment $700,000.00 $500,000.00 $200,000.00 -200000 Accumulated Depreciation -$250,000.00 -$200,000.00 -$50,000.00 $50,000.00 Accounts Payable $130,000.00 $148,000.00 -$18,000.00 -$18,000.00 Other Accrued Liabilities $68,000.00 $63,000.00 $5,000.00 $5,000.00 Income Taxes Payable $90,000.00 $110,000.00 -$20,000.00 -$20,000.00 Long-Term Bank Loan Payable $350,000.00 $300,000.00 $50,000.00 $50,000.00 Common Stock $550,000.00 $400,000.00 $150,000.00 $150,000.00 Retained Earnings $489,000.00 $324,000.00 $165,000.00 -60000 Net Income $225,000.00 $225,000.00 $225,000.00 Totals $ $ $ $172,000.00 -$350,000.00 $140,000.00 Net increase (decrease) in cash -$38,000.00 2. 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. Peoria Corp. Statement of Cash Flows For the Year Ended December 31, 2017 Cash Flows from Operating Activities Net Income $225,000.00 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense $50,000.00 Increase in Accounts Receivable -$50,000.00 Increase in Inventories -$30,000.00 Decrease in Prepayments $10,000.00 Decrease in Accounts Payable -$18,000.00 Increase in Other Accrued Liabilities $5,000.00 Decrease in Income Taxes Payable -$20,000.00 Net Cash provided by operating expenses $172,000.00 Cash Flows from Investing Activities Acquisition of land -$150,000.00 Acquisition of plant and equipment -$200,000.00 Net cash used by investing activities -$350,000.00 Cash Flows from Financing Activities Additional long-term borrowings $50,000.00 Issuance of common stock $150,000.00 Cash dividends paid $60,000.00 Net cash provided by financing activities $260,000.00 Net decrease in cash $82,000.00 Cash balance, December 31, 2016 $90,000.00 Cash balance, December 31, 2017 $ $172,000.00 3. During the year Peoria experienced a decrease in cash at the end of the year due to acquisition of land and plant & equipment.

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