Statement of Cash Flows (Indirect Method) The Towne Company’s income statement a

Question

Statement of Cash Flows (Indirect Method) The Towne Company’s income statement and comparative balance sheets as of December 31 of 2016 and 2015 follow:

During the year, the following transactions occurred:
1. Sold equipment for $9,000 cash that originally cost $19,000 and had $3,000 accumulated depreciation.
2. Sold longterm investments that had cost $70,000 for $87,000 cash. Unrealized gains totaling $10,000 related to these investments had been recorded in earlier years. At yearend, the fair value adjustment and unrealized gain account balances were eliminated.
3. Paid cash to extend the company’s exclusive franchise for another three years.
4. Paid off a note payable at the bank on January 1.
5. Declared and paid a $15,000 dividend.
6. Purchased treasury stock for cash.
7. Acquired land valued at $60,000 by issuing 6,000 shares of common stock.

Required
a. Compute the change in cash that occurred in 2016.
b. Prepare a statement of cash flows using the indirect method.

a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease

b. Use a negative sign with cash outflow answers.

TOWNE COMPANY
Income Statement
For the Year Ended December 31, 2016 Service Fees Earned $317,000 Dividend and Interest Income 14,000 $331,000 Wages and Other Operating Expenses $285,000 Depreciation Expense 55,000 Franchise Amortization Expense 10,000 Loss on Sale of Equipment 7,000 Gain on Sale of Investments (17,000) 340,000 Net Loss $(9,000)

Explanation / Answer

TOWNE COMPANY Statement of Cash Flows For Year Ended December 31, 2016 Cash Flow from Operating Activities Amount ($) Net Loss -9000 Add (deduct) items to convert net income to cash basis Depreciation 55000 Franchise Amortization 10000 Loss on Sale of Equipment 7000 Gain on Sale of Investments -17000 Accounts Receivable Decrease 5000 Interest Receivable Decrease 4000 Prepaid Expenses Increase -6000 Accrued Liabilities Decrease -2000 Cash Provided by Operating Activities (A) 47000 Cash Flow from Investing Activities Sale of Equipment 9000 Sale of Investments 87000 Extension of Franchise (Note:1) -72000 Cash Provided by Investing Activities (B) 24000 Cash Flow from Financing Activities Payment of Notes Payable -26000 Payment of Dividends -15000 Purchase of Treasury Stock -20000 Cash Used by Financing Activities © -61000 Net in Cash Increase 10000 Cash at Beginning of Year 33000 Cash at End of Year 43000 Notes: 1. Computation of cash paid for franchise extension Analyse franchise account Beginning balance 29000 Less:amortisation 10000 19000 Less:Ending balance 91000 Franchise extension amount -72000

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