Question

A comparative balance sheet for Rocker Company appears below:ROCKER COMPANYComparative Balance SheetDec. 31, 2020 Dec. 31, 2019Assets Cash $34,000 $11,000Accounts receivable 18,000 13,000Inventory 25,000 17,000Prepaid expenses 6,000 9,000Long-term investments 0 17,000Equipment 60,000 33,000Accumulated depreciation-equipment (20,000) (15,000)Total assets $123,000 $85,000Liabilities and Stockholder's Equity Accounts payable $17,000 $7,000Bonds payable 36,000 45,000Common stock 40,000 23,000Retained earnings 30,000 10,000Total liabilities and stockholders' equity $123,000 $85,000Additional information:1. Net income for the year ending December 31, 2020 was $35,000.2. Cash dividends of $15,000 were declared and paid during the year.3. Long-term investments that had a cost of $17,000 were sold for $14,000.4. Sales for 2017 were $120,000.Prepare a statement of cash flows for the year ended December 31, 2020 using indirect method.

Answer 1

Answer and Explanation:

The preparation of the cash flow statement is presented below:

Rocker Company

Cash flow statement

Cash flow from operating activities  

Net Income $35000

Adjustments made

Depreciation $5,000

Loss on sale of investments $3,000

Change in operating assets & liabilities  

Less: Increase in accounts receivable  -$5,000

Less: Increase in inventory -$8,000

Add: Decrease in prepaid expenses $3,000

Add: Increase in accounts payable $10,000

Net cash flow from operating activities (a) $43,000

Cash Flow from Investing activities  

Sale of long term investments $14,000

Less: Purchase of equipment -$27000

Net cash Flow from Investing activities (b)-$13,000

Cash Flow from Financing activities  

Dividends paid -$15,000

Less: Bonds payable paid -$9,000

Add: Common stock issued $17,000

Net cash Flow from Financing activities (c) -$7,000

Net Change in cash c = a + b + c $23,000

Add: Beginning cash balance $11,000

Closing cash balance $34,000