Concept explainers
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 |
(481,500) | (368,400) |
Total assets | $4,751,460 | $4,008,900 |
Liabilities and |
||
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 |
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:
- A. Equipment and land were acquired for cash.
- B. There were no disposals of equipment during the year.
- C. The investments were sold for $588,000 cash.
- D. The common stock was issued for cash.
- 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.
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