Question

The Murdock Corporation reported the following balance sheet data for 2018 and 2017: 2018 2017 Cash $ 90,695 $ 30,155 Available-for-sale debt securities (not cash equivalents) 21,500 97,000 Accounts receivable 92,000 79,050 Inventory 177,000 155,800 Prepaid insurance 2,580 3,200 Land, buildings, and equipment 1,274,000 1,137,000 Accumulated depreciation (622,000 ) (584,000 ) Total assets $ 1,035,775 $ 918,205 Accounts payable $ 87,140 $ 160,670 Salaries payable 24,800 30,500 Notes payable (current) 35,800 87,000 Bonds payable 212,000 0 Common stock 300,000 300,000 Retained earnings 376,035 340,035 Total liabilities and shareholders' equity $ 1,035,775 $ 918,205 Additional information for 2018: (1.) Sold available-for-sale debt securities costing $75,500 for $81,200. (2.) Equipment costing $20,000 with a book value of $6,200 was sold for $7,800. (3.) Issued 6% bonds payable at face value, $212,000. (4.) Purchased new equipment for $157,000 cash. (5.) Paid cash dividends of $26,000. (6.) Net income was $62,000.
Prepare a statement of cash flows for 2018 in good form using the indirect method for cash flows from operating activities.

Answer 1

Answer:

Prepare the Cash flow from Operating Activities Section as follows :

Net income                                                                     62,000

Adjustments for Non - Cash Items :

Depreciation - Land, buildings, and equipment          38,000

Adjustment for Working Capital Items :

Increase in Accounts Receivable                                 (12,950)

Increase in Inventory                                                     (21,200)

Decrease in Prepaid Insurance                                          620

Decrease in Accounts payable                                    (73,530)

Decrease in Salaries payable                                        (5,700)

Decrease in Notes payable                                          (51,200)

Net Cash from Operating Activities                             (63,960)

Explanation:

Note that the question has requested use of indirect method for preparation of cash flows from operating activities.