Please help solve EXERCISE 13-7 Prepare a Statement of Cash Flows (Indirect Meth

Question

Please help solve EXERCISE 13-7 Prepare a Statement of Cash Flows (Indirect Method) Comparative financial statement data for Holly Company are given below: (LO2, LO3) December 3 2002 2001 Cash Accounts receivable . 36 29 6 1 180 (40)(30) $247 $39 70 138 $247 Common stock 90 For 2002, the company reported net income as follows: . .. . $500 300 $20 Dividends of $8 were declared and paid during 2002. There were no sales of plant and equipment during the year. Required: Using the indirect method, prepare a statement of cash flows for 2002.

Explanation / Answer

Indirect statement

Cash flow from operating activities:

Net income = 20

Add back: depreciation expense = (40-30) = 10

Increase in account receivable = (29-36) = -7

Increase in account payable = (45-39) = 6

Increase in inventory = (61-75) = -14

Net cash from operating activities = 15

Cash flow from investing activities:

Purchase of land and equipment = (180-210) = -30

Net cash flow from investing activities = -30

Cash flow from financing activities:

Issuance of common stock = (90-70) = 20

Payment of dividend = -8

Cash flow from financing activities = 12

So, net cash flow = 15-30+12 = -3

Hence Cash in 2002 = cash in 2001-3

= 7-3 = 4

Hope it helps

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