Question

The management team of Wickersham Brothers Inc. is preparing its annual financial statements.

Answer 1

Answer:

Wickersham Brothers Inc.

Statement of Cash Flows, indirect method:

Operating Activities:

Adjustment of Net Income  $70,360

Add Depreciation                   24,640

Cash from operations                          $95,000

Working capital adjustments:

Accounts receivable                            -$15,500

Inventory                                                   7,750

Accounts Payable                                  -$3,100

Salaries & Wages Payable                        1,550

Income Tax expense                           -$17,590

Interest expense                                  -$4,650

Cash flow from operating activities   $64,460

Financing Activities:

Long-term note payable -$15,500

Common Stock               $20,000

Dividend                         -$26,400

Cash flow from financing activities  -$21,900

Investing Activities:

Equipment                                        -$83,000

Net Cash flows                                 ($40,440)

Explanation:

a) Balance Sheet

Assets:                              Current Year       Prior Year

Cash                                     $95,700            $114,900

Accounts receivable            124,000             108,500

Merchandise inventory        93,000             100,750

Property and equipment    176,000               93,000

Less: Accumulated

depreciation                       (50,640)             (26,000)

Total assets                    $438,060             $391,150

Liabilities:

Accounts payable            $15,500               $18,600

Salaries & Wages Payable   3,100                   1,550

Notes payable, long-term 77,500                93,000

Stockholders' Equity:

Common stock               144,000               124,000

Retained earnings         197,960                154,000

Total Liabilities and

Stockholders' Equity $438,060               $391,150

b) Income Statement

Sales                          $420,000

Cost of goods sold     220,000

Depreciation expense  24,640

Other expenses          105,000

Net income                 $70,360

c) Operating Activities:

Accounts receivable -$15,500

Inventory 7,750

Accounts Payable -$3,100

Salaries & Wages Payable 1,550

Income Tax expense -$17,590

Interest expense -$4,650

Net Income                   $70,360

Add Depreciation           24,640

Cash from operations $95,000

d) Financing Activities:

Long-term note payable -$15,500

Common Stock $20,000

Dividend -$26,400

e) Investing Activities:

Equipment -$83,000

f) The indirect method is one of the two methods for preparing the Statement of Cash Flows.  This method takes the net income and adjusts non-cash flow expenses, like depreciation.  It is prepared through a reconciliation of balances, of inflows and outflows during two periods.