Statement of Cash Flows (Indirect Method) The Rural Company\'s income statement

Question

Statement of Cash Flows (Indirect Method) The Rural Company's income statement and comparative balance sheets as of December 31 of 2016 and 2015 are shown below. RURAL COMPANY Income Statement For the Year Ended December 31, 2016 645,000 Cost of Goods Sold $376,000 Wags Expense Depredlation Expense 22,000 Rent Expense Income TaxExpense 31,000 564000 107,000 RURAL COMPANY Dec. 31, 2016 Dec. 31, 2015 41,000 $33,000 Accounts Reccivablc 42000 116,000 Prepaid Rent 4,000 420,000 127,000) 542.000 $414,000 300,000 Llabilities and Stocilholders' Equity Accounts Payable Wagrs Payable Income Tax Payable Common Stock Paid-In-Capital in Excess of Par Value Retained Eamings Total Lisbilities and Stockholders Equity 29,00017,000 7,000 8,000 252,000 4,000 ,000 295,000 25.000 72,000 $414,000 Cash dividends of $28,000 were declared and paid during 2016. Plant assets were purchased for cash and additional common stock was issued for cash. Accournts payable relate to merchandise purchases. a. Caculate the change in cash that occurred during 2016. b. Prepare a siatement of cash flows using the indirect method C. Compute free cash flaw. d. Compute the oper e. Compute the operating-cash-flaws-to-capital-expenditures ratio. Round to two decimal points ratio. Round to two decimal points a. Change in Cash during 2016 b. Use a negative sign with cash outflow answers.

Explanation / Answer

a. Change in cash $8000 increase

b.

Statement of cash flows for the year ended December 31,2016

c. Free cash flows = Operating cash flows - capital expenditure

= $99000 - ($120000)

= $219000.

d. Operating cash flows to current liabilities ratio = $99000 / $50000

= 1.98

Particulars Amount($) Cash flows from operating activities: Net income $81000 Depreciation $22000 Adjustments: Decrease in accounts receivable $8000 Increase in inventory ($26000) Increase in accounts payable $12000 Increase in wages payable $7000 Decrease in income taxes payable ($1000) Increase in prepaid rent ($4000) Net cash flows from operating activities $99000 Cash flows from investing activities: Purchase of plant assets ($120000) Net cash flows from investing activities ($21000) Cash flows frrom financing activities: Issue of common stock $43000 Isssue of paid in capital $14000 Dividends paid ($28000) Net cash flows from financing activities $8000 Beginning cash balance $33000 Ending cash balance $41000.

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