The management team of Wickersham Brothers Inc. is preparing its annual financia

Question

The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.

Prior Year

340,550

Other information from the company’s records includes the following:

Income tax expense ($13,430) and interest expense ($4,050) were paid in full at the end of both years and are included in Other Expenses.

Required:

Prepare the statement of cash flows using the indirect method. Include any supplemental disclosures. (Enter any deductions and cash outflows as a negative value.)

Statement of Cash Flows

Cash Flows from Operating Activites:

  

Adjustments to reconcile net income to net cash provided by operating activiies:

Current Year

Prior Year

  Balance Sheet   Assets     Cash $ 78,900 $ 99,300     Accounts receivable 108,000 94,500     Merchandise inventory 81,000 87,750     Property and equipment 152,000 81,000     Less: Accumulated depreciation (43,280 ) (22,000 )   Total assets $ 376,620 $ 340,550   Liabilities:     Accounts payable $ 13,500 $ 16,200     Salaries and Wages Payable 2,700 1,350     Notes payable, long-term 67,500 81,000   Stockholders’ Equity:     Common stock 128,000 108,000     Retained earnings 164,920 134,000   Total liabilities and stockholders’ equity $ 376,620 $

340,550

  Income Statement     Sales $ 340,000     Cost of goods sold 180,000     Depreciation expense 21,280     Other expenses 85,000     Net income $ 53,720

Explanation / Answer

cash flow from operating activity

Net income 53720

add: interest expense 4050

add: Depreciation 21280

Changes in current assets and current liabilities

less: increase in accounts receivable (13500)

add: decrease in inventory 6750

less: decrease in Accounts payable (2700)

add: increase in salary and wages payable 1350   

net cash generated from operating activities 70950

cash flow from investing activity

purchase of equipment (71000)

net cash used from investing activities   (71000)

cash flow from financing activity

proceeds from issue of common stock 20000

interest expense (4050)

Cash dividends (22,800)

payment of long-term note payable (13,500)

net cash used from Financing activities (20350)

Net increase/(decrease) in cash and cash equivalent (20400)

add: Cash and Cash equivalents, beginning of period: 99,300

Cash and cash equivalents, end of period   78,900

Disclosure:-

Tax on Net income is already dedcucted and paid , therefore no need to add back the provison of tax in Net income

Interest expense is a financing activity , therefore add back the interest amount in Net income

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