Textbook Problem

Statement of cash flows — direct method

The comparative balance sheet of Martinez Inc. for December 31, 20Y4 and 20Y3, is as follows:

	Dec. 31, 20Y4	Dec. 31, 20Y3
Assets
Cash	$ 661,920	$ 683,100
Accounts receivable (net)	992,640	914,400
Inventories	1,394,400	1,363,800
Investments	0	432,000
Land	960,000	0
Equipment	1,224,000	984,000
Accumulated depreciation—equipment	(481,500)	(368,400)
Total assets	$4,751,460	$4,008,900
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors)	$1,080,000	$ 966,600
Accrued expenses payable (operating expenses)	67,800	79,200
Dividends payable	100,800	91,200
Common stock, $5 par	130,000	30,000
Paid in capital: Excess of issue price over par—common stock	950,000	450,000
Retained earnings	2,422,860	2,391,900
Total liabilities and stockholders' equity	$4,751,460	$4,008,900

The income Statement for the year ended December 51. 20Y3. is as follows:

Sales		$4,512,000
Cost of goods sold		2,352,000
Gross profit		$2,160,000
Operating expenses:
Depredation expense	$ 113,100
Other operating expenses	1,344,840
Total operating expenses		1,457,940
Operating income		$ 702,060
Other income:
Gain on sale of investments		156,000
Income before income tax		$ 858,060
Income tax expense		299,100
Net income		$ 558,960

Additional data obtained from an examination of the accounts in the ledger for 20Y3 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 $588,000 cash.
4. D. The common stock was issued for cash.
5. E. There was a $528,000 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.