The following information and financial statements excerpts pertain to Liquidity
ID: 2529366 • Letter: T
Question
The following information and financial statements excerpts pertain to Liquidity, Inc.
All short term investments (securities available for sale) were purchased on 12/31/18 and sold during 2019.
The company entered a lease agreement on 12/31/19.
Fixed assets with a net book value of $15 were sold during the year.
The company repaid the current portion of long-term debt during the year.
Dividend was declared and partially paid.
Required:
Prepare the statement of cash flows for the year 2019 using the direct method.
Reconcile net income and net cash flows from operating activities for the year 2019.
2018 2019 Assets Cash 54 45 Short term investments 95 0 Accounts receivable 45 85 Inventory 52 75 Prepaid general expenses 11 15 Fixed assets under capital lease, net 0 50 Fixed assets, net 165 228 422 498 Liabilities and stockowners’ equity Accounts payable 38 48 Wages payable 12 6 Tax payable 3 5 Dividend payable 0 4 Current portion of long term debt 10 12 Obligations under capital leases 0 50 Long term debt 183 180 Common stock 150 163 Retained earnings 26 30 422 498Explanation / Answer
Liquidity, Inc. Statement of Cash flows( Indirect method) Cash flows from operating activities Net Income 10 Add : Tax expense 8 Less : Gain on sale of investment -12 Add : Loss on sale of asset 3 Add : Depreciation 24 Net cash flows before working capital changes 33 Less : Increase in accounts receivable -40 Less : increase in Inventory -23 Less : Increase in prepaid expenses -4 Add : Increase in accounts payable 10 Less : Decrease in wages payable -6 Total -30 Less : Taxes paid -6 Net Cash flows provided by operating activities -36 Cash flows from Financing activities Cash dividends paid -2 Proceeds from issuance of stock 13 Repayment of current portion of long term debt -10 Proceeds from long term debt 9 Net Cash flows provided by financing activities 10 Cash flow from Investing activities Proceeds from sale of investment 107 Proceeds from sale of assets 12 Purchase of plant and equipment -102 Net Cash flows provided by investing activities 17 Net cash -9 Add : Beginning Cash balance 54 Ending cash balance 45
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