Statement of Cash Flows—Indirect Method The comparative balance sheet of Amelia

Question

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Amelia Enterprises, Inc. at December 31, 2014 and 2013, is as follows:

Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2014 are as follows:

Net income, $172,980.

Depreciation reported on the income statement, $46,000.

Equipment was purchased at a cost of $89,020, and fully depreciated equipment costing $24,900 was discarded, with no salvage realized.

The mortgage note payable was not due until 2016, but the terms permitted earlier payment without penalty.

8,000 shares of common stock were issued at $18 for cash.

Cash dividends declared and paid, $105,410.

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash and for any adjustments, if required.

Dec. 31, 2014 Dec. 31, 2013 Assets Cash $81,420 $100,190 Accounts receivable (net) 125,110 135,070 Merchandise inventory 178,720 167,420 Prepaid expenses 7,280 5,070 Equipment 364,070 299,950 Accumulated depreciation-equipment (94,660) (73,560) Total $661,940 $634,140 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $139,010 $132,540 Mortgage note payable 0 190,240 Common stock, $1 par 21,000 13,000 Paid-in capital in excess of par-common stock 315,000 179,000 Retained earnings 186,930 119,360 Total $661,940 $634,140

Explanation / Answer

Amelia Enterprises

Cash flow statement for the year ended

Particulars

Amount

Amount

Net income

172980

Adjustments:

Depreciation

46000

Decrease in Accounts receivable

9960

Increase in Inventory

-11300

Increase in Prepaid expense

-2210

Increase in Accounts payable

6470

48920

Cash flows from operating activities

221900

Cash flows from investing activities

Purchase of equipment

-89020

-89020

Cash flows from financing activities

Proceeds from sale of common stock

144000

Dividend paid

-105410

retirement from mortgage note payable

-190240

-151650

Increase in cash

-18770

Cash flow at the beginning

100190

Cash flow at the end

81420

Amelia Enterprises

Cash flow statement for the year ended

Particulars

Amount

Amount

Net income

172980

Adjustments:

Depreciation

46000

Decrease in Accounts receivable

9960

Increase in Inventory

-11300

Increase in Prepaid expense

-2210

Increase in Accounts payable

6470

48920

Cash flows from operating activities

221900

Cash flows from investing activities

Purchase of equipment

-89020

-89020

Cash flows from financing activities

Proceeds from sale of common stock

144000

Dividend paid

-105410

retirement from mortgage note payable

-190240

-151650

Increase in cash

-18770

Cash flow at the beginning

100190

Cash flow at the end

81420

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