4. On the basis of the following data for Larson Co. for the year ending Decembe
ID: 2477813 • Letter: 4
Question
4. On the basis of the following data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that: Equipment costing $125,000 was purchased for cash. Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000. The stock was issued for cash. The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000. Year 2 Year 1 Cash $100,000 $ 78,000 Accounts receivable (net) 78,000 85,000 Inventories 101,500 90,000 Equipment 410,000 370,000 Accumulated depreciation (150,000) (158,000) $539,500 $465,000 Accounts payable (merchandise creditors) $ 58,500 $ 55,000 Cash dividends payable 5,000 4,000 Common stock, $10 par 200,000 170,000 Paidin capital in excess of par—common stock 62,000 60,000 Retained earnings 214,000 176,000 $539,500 $465,000
Explanation / Answer
cash flow from operating activity Net income 51000 Adjustment to reconcile net income to Loss on sale [(85000-65000)- 15000] 5000 Depreciation [150000+65000-158000] 57000 Decrease in receivable [85000-78000] 7000 Increase in inventory [101500-90000] -11500 Increase in payables [58500-55000] 3500 61000 Cash provided by operating activity 112000 cash from investing activity Sale of equipment 15000 Purchase of equipment -125000 Net cash used by investing activity - 110000 cash from financing activity Dividend paid [4000+13000-5000] -12000 common stock issued [(200000-170000)+(62000-60000) 32000 Net cash provided by financing activity 20000 net increase in cash 22000 Add beginning balance 78000 cash balance at end 100000
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