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.
