Question

Statement of Cash Flows—Indirect Method

Answer 1

Answer:

Statement of Cash Flows

Cash flow From Operating Activities

Net income                                                                        $524,580

Adjustment for Non Cash Items :

Depreciation expense - buildings                                      $51,660

Depreciation expense - machinery and equipment        $22,680

Patent amortization                                                              $5,040

Adjustments for Changes in Working Capital Items :

Increase in Accounts receivable                                      -$73,080

Decrease in Inventories                                                    $134,680

Increase in Prepaid expenses                                           -$6,400

Decrease in Accounts payable                                        -$89,600

Net Cash From Investing Activities                                 $569,540

Cash flow From Investing Activities

Buildings                                                                           -$579,600

Net Cash From Investing Activities                                 -$579,600

Cash flow From Financing Activities

Mortgage Note                                                                  $224,000

Dividends Paid                                                                  -$123,480

Net Cash From Financing Activities                                 $100,520

Movement during the year                                                  $82,320

Cash and Cash Equivalents at beginning of the year     $360,920

Cash and Cash Equivalents at end of the year                $443,240

Explanation:

For Determination of Dividends Paid, open a Dividends Paid Account as follows :

Debit:

Cash  (Balancing figure) 123,480

Balance c/d                       32,760

Totals                               156,240

Credit

Balance b/d                      25,200

Dividends Declared         131,040

Totals                               156,240