Textbook Problem

Statement of cash flows—direct method

The comparative balance sheet of Canace Products Inc. for December 31, 20Y6 and 20Y5, as follows:

	Dec. 31, 20Y6	Dec. 31, 20Y5
Assets
Cash	$ 643,400	$ 679,400
Accounts receivable (net)	566,800	547,400
Inventories	1,011,000	982,800
Investments	0	240,000
Land	520,000	0
Equipment	880,000	680,000
Accumulated depreciation	(244,400)	(200,400)
Total assets	$33,76,800	$2,929,200
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors]	$ 771,800	$ 748,400
Accrued expenses payable (operating expenses)	63,400	70,800
Dividends payable	8,800	6,400
Common stock. $2 par	56,000	32,000
Paid-in capital: Excess of issue price over par—common stock	408,000	192,000
Retained earnings	2,068,800	1,879,600
Total liabilities and stockholders' Equity	$3,376,800	$2,929,200
The income .statement for the year ended December 31, 20Y6, is as follows
Sales		$5,980,000
Cost of goods sold		2,452,000
Gross profit		$3,328,000
Operating expenses:
Depreciation expense	$ 44,000
Other operating expenses	3,100,000
Total operating expenses		3,144,000
Operating income		$ 384,000
Other expense:
Loss on sale of investments		(64,000)
Income before income tax		$ 320,000
Income tax expense		102,800
Net income		$ 217,200

Additional data obtained from an examination of the accounts in the ledger for 20Y6 are as follows:

1. A. Equipment and land were acquired for cash.
2. B. There were no disposals of equipment during the year.
3. C. The investments were sold for $176,000 cash.
4. D. The common stock was issued for cash.
5. E. There was a $28,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.