Statement of Cash Flows—Indirect Method The comparative balance sheet of Mills E

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Mills Engine Co. at December 31, 2014 and 2013, is as follows:

The noncurrent asset, noncurrent liability, and stockholders' equity accounts for 2014 are as follows:

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash and for any adjustments, if required.

     Dec. 31, 2014      Dec. 31, 2013 Assets Cash $ 523,210 $ 565,830 Accounts receivable (net) 476,120 434,260 Inventories 722,030 664,480 Prepaid expenses 16,740 19,880 Land 179,980 272,070 Buildings 831,900 512,750 Accumulated depreciation-buildings (235,440) (219,750) Equipment 293,000 258,990 Accumulated depreciation-equipment (80,570) (90,520) $2,726,970 $2,417,990 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 518,120 $ 546,750 Bonds payable 152,710 0 Common stock, $20 par 178,000 66,000 Paid-in capital in excess of par-common stock 430,000 318,000 Retained earnings 1,448,140 1,487,240 $2,726,970 $2,417,990

Explanation / Answer

The following is the indirect method formula to calculate net cash flow from operating activities:

Cash Flows from Operating Activities: Net Income + Non-Cash Expenses: (Depreciation, Depletion & Amortization Expense) + Non-Operating Losses: (Loss on Sale of Non-Current Assets) Non-Operating Gains: (Gain on Sale of Non-Current Assets) + Decrease in Current Assets: (Accounts Receivable, Prepaid Expenses, Inventory etc.) Increase in Current Assets + Increase in Current Liabilities: (Accounts Payable, Accrued Liabilities, Income Tax Payable etc.) Decrease in Current Liabilities = Net Cash Flow from Operating Activities

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