Chapter 12, Problem 23E

(Supplement 12B) Preparing a Statement of Cash Flows, Indirect Method: T-Account Approach

Golf Universe is a regional and online golf equipment retailer. The company reported the follow­ing for the current year:

• Purchased a long-term investment for cash, $15,000.
• Paid cash dividend. $12,000.
• Sold equipment for $6,000 cash (cost, $21,000; accumulated depreciation, $15,000).
• Issued shares of no-par stock, 500 shares at $12 cash per share.
• Net income was $20,200.
• Depreciation expense was $3,000.
• Its comparative balance sheet is presented below.

	Ending Balances	Beginning Balances
Cash	$ 19,200	$ 20,500
Accounts Receivable	22,000	22,000
Inventory	75,000	68,000
Investments	15,000	0
Equipment	93,500	114,500
Accumulated Depreciation—Equipment	(20,000)	(32,000)
Total	$204,700	$193,000
Accounts Payable	$ 14,000	$ 17,000
Salaries and Wages Payable	1,500	2,500
Income Taxes Payable	4,500	3,000
Notes Payable (long-term)	54,000	54,000
Common Stock	106,000	100,000
Retained Earnings	24,700	16,500
Total	$204,700	$193,000

Required:

1. 1. Following Supplement 12B, complete a T-account worksheet to be used to prepare the statement of cash flows for the current year.
2. 2. Based on the T-account worksheet, prepare the statement of cash flows for the current year in proper format.

To determine

To complete: The T-account worksheet to be used to prepare the statement of cash flows for the current year.

Explanation of Solution

Prepare T-account worksheet.

(A) Changes in Cash Account.

Cash (A)
Operating
(1) Net Income	$20,200	$7,000	(3) Inventory
(2) Depreciation Expense	$3,000	$3,000	(4) Accounts Payable
(6) Income Taxes Payable	$1,500	$1,000	(5) Salaries and Wages Payable
Net cash flow provided by operating activities	$13,700
Investing
(7) Sale of Equipment	$6,000	$15,000	(8) Purchased Investment
		$9,000	Net cash used in investing activities
Financing
(9) Proceeds from stock issuance	$6,000	$12,000	(10) Payment of dividends
		$6,000	Net cash used in financing activities
Beginning balance	$20,500	$1,300	Decrease in cash
Ending balance	$19,200

(B) Changes in Non-Cash Accounts.

Accounts Receivable (A)
Beginning balance	$22,000
No changes
Ending balance	$22,000

Inventory (A)
Beginning balance	$68,000
(3) Increase	$7,000
Ending balance	$75,000

Equipment (A)
Beginning balance	$114,500
Purchases	$0	(3) Disposals	$21,000
Ending balance	$93,500

Investments (A)
Beginning balance	$0
(8) Purchases	$15,000
Ending balance	$15,000

Accumulated Depreciation-Equipment (xA)
		Beginning balance	$32,000
(7) Disposals	$15,000	(2) Depreciation	$3,000
		Ending balance	$20,000

Accounts Payable (L)
		Beginning balance	$17,000
(4) Decrease	$3,000
		Ending balance	$14,000

Salaries and Wages Payable (L)
		Beginning balance	$2,500
		(5) Increase	$1,000
		Ending balance	$1,500

Income Taxes Payable (L)
		Beginning balance	$3,000
		(6) Increase	$1,500
		Ending balance	$4,500

Notes Payable (long-term) (L)
		Beginning balance	$54,000
		Ending balance	$54,000

Common Stock (SE)
		Beginning balance	$100,000
Stock repurchased	$0	(9) Stock issued	$6,000
		Ending balance	$106,000

Retained Earnings (SE)
		Beginning balance	$16,500
(10) Dividends	$6,000	(1) Net income	$20,200
		Ending balance	$24,700

To determine

To prepare: The statement of cash flows of Company GS based on the T-accounts.

Explanation of Solution

Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Prepare the statement of cash flows of Company GS for the year ended December 31, under indirect method.

Company GS
Statement of Cash Flows (Indirect Method)
For the year ended December, 31
Particulars	Amount	Amount
Cash flows from operating activities:
Net income	$20,200
Add: Depreciation expense	$3,000
Changes in current assets and current liabilities
Add: Increase in income tax payable	$1,500
Less: Increase in inventories	($7,000)
Less: Decrease in accounts payable	($3,000)
Less: Decrease in salaries and wages payable	($1,000)
Net cash flows from operating activities		$13,700
Cash flows from Investing activities:
Sale Proceeds of equipment	$6,000
Purchase of equipment	($15,000)
Net cash used in investing activities		($9,000)
Cash flows from Financing activities:
Cash proceeds from issuance of common stock	$6,000
Dividends paid	($12,000)
Net cash used in financing activities		($6,000)
Net increase in cash		($1,300)
Opening Cash Balance		$20,500
Closing Cash Balance		$19,200

Table (1)