On the basis of the following data for Branch Co. for the current and preceding

Question

On the basis of the following data for Branch Co. for the current and preceding years ended December 31. Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000. The stock was issued for cash and the only entries in the retained earnings account were for net income of $56,000 and cash dividends declared and paid of $18,000. 1 Current year Prior year 2 Cash $65,000.00 $54,000.00 3 Accounts receivable (net) 78,000.00 85,000.00 4 Inventories 106,500.00 90,000.00 5 Land 20,000.00 6 Equipment 495,000.00 370,000.00 7 Accumulated depreciation (215,000.00) (158,000.00) 8 $529,500.00 $461,000.00 9 Accounts payable (merchandise creditors) $53,500.00 $55,000.00 10 Common stock, $10 par 200,000.00 170,000.00 11 Paid-in capital in excess of par—common stock 62,000.00 60,000.00 12 Retained earnings 214,000.00 176,000.00 13 $529,500.00 $461,000.00

Prepare a statement of cash flows using the indirect method. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. In the operating activities section, use the minus sign to indicate cash outflows, decreases in cash and a net cash out flow, if required. In the investing and financing activities section, use a minus sign only to indicate a NET cash outflow for the section. “Less” or “Plus” will automatically appear if it is required.

Explanation / Answer

Current year previous year Cash 65000 54000 Accounts receivable 78000 85000 Inventories 106500 90000 Land 0 20000 equipment 495000 370000 Accumulated depreciation -215000 -158000 529500 461000 Accounts payable 53500 55000 Common stock 200000 170000 Paid in capital 62000 60000 Retained earnings 214000 176000 529500 461000 Cash flow statement Cash flow from operating activity Net Income 56000 Add decrease in accounts receivable 7000 Depriciation 57000 Loss on sale of land 5000 69000 Less increase in inventories -16500 decrease in accounts payable -1500 -18000 Net cash flow from operating activity 107000 Cash flow from investing activity Sale of land 15000 Less : purchase of equipment -125000 Net cash flow from investing activity -110000 Cash flow from financing activity Issue of common stock 30000 Increase in paid in capital 2000 Less dividends paid -18000 Net cash flow from financing actibity 14000 Net cash flow 11000 opening balance in cash 54000 closing balance of cash 65000 net increase of caash 11000

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