Statement of Cash Flows (Indirect Method) Arctic Company\'s income statement and

Question

Statement of Cash Flows (Indirect Method)
Arctic Company's income statement and comparative balance sheets as of December 31 of 2013 and 2012 follow:

During 2013, Arctic sold land for $91,000 cash that had originally cost $58,500. Arctic also purchased equipment for cash, acquired treasury stock for cash, and issued bonds payable for cash. Accounts payable relate to merchandise purchases.

Required
a. Calculate the change in cash that occurred during 2013.
b. Prepare a statement of cash flows using the indirect method.

a. Change in Cash during 2013 $Answer AnswerIncreaseDecrease

b. Use a negative sign with cash outflow answers.

ARCTIC COMPANY
Income Statement
For the Year Ended December 31, 2013 Sales Revenue $946,400 Cost of Goods Sold $694,200 Wages Expense 247,000 Advertising Expense 40,300 Depreciation Expense 28,600 Interest Expense 23,400 Gain on Sale of Land (32,500) 1,001,000 Net Loss $(54,600)

Explanation / Answer

Solution:

Solution:

a) Change in Cash During 2013 = Cash Balance as at Dec 31, 2013 – Cash balance as at Dec.31, 2012 = $63,700 – 36,400 = $27,300. b) Statement of Cash Flows using the indirect method Cash Flow Statement (Indirect Method) Cash Flow from Operating Activities: $$ $$ Net Loss ($54,600) Adjustments for: + Depreciation Expenses (Non cash item) $28,600 + Interest Expenses (Financing Activity) $23,400 - Gain on Sale of Land (Investing Activity) ($32,500) Operating Profit before working capital changes: ($35,100) Adjustment for: + Accounts Receivable (65,000 - 54,600) $10,400 + Inventories (146,900 - 139,100) $7,800 + Prepaid Advertising (16,900 - 13,000) $3,900 - Accounts Payable (40,300 - 22,100) ($18,200) Cash generation from operations ($31,200) Net Cash used by Operative Activities ($31,200) Cash Flow from Investing Activities: + Sale of Land $91,000 - Purchase of Equipment (Total Plant Asset 468,000 + Land Cost Sold during year 58,500 - Beginning Plant Asset 288,600) ($237,900) Net Cash used by Investing Activities ($146,900) Cash Flow from Financing Activities: - Purchase of Treasury Stock ($39,000) + Issue of Bonds Payable $260,000 - Interest Paid (Interest Expense 23,400 - Interest Payable 7,800) ($15,600) Net Cash from Investing Activities $205,400 Net Increase/(Decrease) in Cash and Cash Equivalents $27,300 Cash and Cash Equivalents at the beginning of the year $36,400 Cash and Cash Equivalents at the end of the year $63,700

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