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.

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The indirect method involves reporting net cash flow from operating activities; it is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments and all accruals of future operating cash receipts and payments. The sum of operating, investing, and financing activities must equal the net change in cash.

2. Cash flow from operations computed under the direct method is
preferred by investors as it provides more information by showing actual inflows and outflows of cash.

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Correct

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Partially correct

For the Year Ended
June 30, 2017

Explanation / Answer

Solution 1:

Solution 2:

Statement of Cash Flows - Glendive Corporation
For the year ended Jun 30, 2017 Particulars Details Amount Cash Flow from Operating Activities: Net Income $33,000.00 Adjustments to reconcile net income to cash flow from operating activities: Depreciation Expense $75,000.00 Loss on sale of plant assets $5,000.00 Increase in Accounts Receivables ($90,000 - $75,000) -$15,000.00 Decrease in Inventory ($95,000 - $80,000) $15,000.00 Decrease in prepaid rent ($16,000 - $12,000) $4,000.00 Increase in Accounts payable ($155,000 - $148,000) $7,000.00 Increase in other accrued liabilities ($32,000 - $26,000) $6,000.00 Decrease in income taxes payable ($10,000 - $8,000) -$2,000.00 Total Adjustments $95,000.00 Net Cash Flow From Operating Activites (A) $128,000.00 Cash Flow from Investing Activities: Sale of plant assets $25,000.00 Acquisiton of new plant assets -$195,000.00 Cash paid for purchase of land -$80,000.00 Net Cash used by Investing Activites (B) -$250,000.00 Cash Flow from Financing Activities: Repayment of long term loan -$30,000.00 Issuance of additional stock $150,000.00 Payment of cash dividends -$7,000.00 Net Cash provided by Financing Activites (C) $113,000.00 Total Cash flow from all activities (A+B+C) -$9,000.00 Cash at the beginning of the year $40,000.00 Cash at the end of year $31,000.00

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