Question

Exercise 12-7 Shown below are comparative balance sheets for Splish Brothers Company. Splish Brothers Company Comparative Balance Sheets December 31 Assets 2017 2016 Cash $ 105,808 $ 34,232 Accounts receivable 136,928 118,256 Inventory 259,852 294,084 Land 124,480 155,600 Equipment 404,560 311,200 Accumulated depreciation—equipment (102,696 ) (49,792 ) Total $928,932 $863,580 Liabilities and Stockholders’ Equity Accounts payable $ 60,684 $ 66,908 Bonds payable 233,400 311,200 Common stock ($1 par) 336,096 270,744 Retained earnings 298,752 214,728 Total $928,932 $863,580 Additional information: 1. Net income for 2017 was $144,708. 2. Depreciation expense was $52,904. 3. Cash dividends of $60,684 were declared and paid. 4. Bonds payable amounting to $77,800 were redeemed for cash $77,800. 5. Common stock was issued for $65,352 cash. 6. No equipment was sold during 2017. 7. Land was sold for its book value. Prepare a statement of cash flows for 2017 using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000, or in parenthesis e.g. (15,000)). Splish Brothers Company Statement of Cash Flows $ Adjustments to reconcile net income to $ $ Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

Operating Activities

net income                              144,708

adjustment for non-monetary terms

depreciation expense             52,904

                                   adjusted income              197,612‬

change in working capital

↑account receivable       (18,672)

↓Inventory                        34,232

↓Account Payable            (6,224)

net change in working capital                               9,366

Cash flow generated from operating activities 206,948‬

Investing Activities

Proceeds from sale of land       31,120

Purchase of Equipment          (93,360)

cash flow used for investing activities           (62,240)  

Financing Activities

issuance of common stock      65,352

redemption of bonds payable (77,800)

dividends paid                          (60,684)

cash flow used for financing activities            (73,132)

Cash flow generated for the Year ended December 31th 2017:  71,576‬

Cash flow at the beginning of the Year                                             34,232

Cash flow at December 31th 2017                                                    105,808‬                    

Explanation:

We adjust the net income for the non-monetary terms, which is depreciation.

Then we calcualte the changes in current assets and current liabilities.

Increase in AR means less sales were colelcted. It decreases cash

Decrease in invneotry it means more sale were made. It increase cash

Decrease in Account payable means there were payment to suppliers, cash decreases.

For investing we calcualte the difference in land and equipment.

Land decrease, therefore, the company sale. While euqipment increased so, it purchase

For financing, we plug the values given for stock, dividends and bond redemption