Textbook Problem

Statement of cash flows —direct method applied to PR 13–1A

The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2 is as follows:

	Dec. 31, 20Y3	Dec. 31, 20Y2
Assets
Cash	$ 155,000	$ 150,000
Accounts receivable (net)	450,000	400,000
Inventories	770,000	750,000
Investments	0	100,000
Land	500,000	0
Equipment	1,400,000	1,200,000
Accumulated depreciation—equipment	(600,000)	(500,000)
Total assets Liabilities and Stockholders' Equity	$2,675,000	$2,100,000
Accounts payable (merchandise creditors)	$ 340,000	$ 300,000
Accrued expenses payable (operating expenses)	45,000	50,000
Dividends payable	30,000	25,000
Common stock, $4 par	700,000	600,000
Paid-in capital: Excess of issue price over par—common stock	200,000	175,000
Retained earnings	1,360,000	950,000
Total liabilities and stockholders' equity	$2,675,000	$2,100,000

The income statement for the year ended December 31, 20Y3, is as follows:

Sales		$ 3,000,000
Cost of goods sold		1,400,000
Gross profit		$ 1,600,000
Operating expenses:
Depreciation expense	$ 100,000
Other operating expenses.	950,000
Total operating expenses		1,050,000
Operating income		$550,000
Gain on sale of investments		75,000
Income before income tax		$625,000
Income tax expense		125,00
Net income		$ 500,000

Additional data obtained from an examination of the* accounts in the ledger for 20Y3 are as follows:

1. A. The investments were sold for $175,000 cash.
2. B. Equipment and land were acquired for cash.
3. C. There were no disposals of equipment during the year.
4. D. The common stock was issued for cash.
5. E. There was a $90,000 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.