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Statement of cash flows—indirect method The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows: Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows: a. Net income, $250,000. b. Depreciation reported on the income statement, $135,000. c. Equipment was purchased at a cost of $420,000 and fully depreciated equipment costing $90,000 was discarded, with no salvage realized. d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty. e. 30,000 shares of common stock were issued at $20 for cash. f. Cash dividends declared and paid, $45,000. Instructions Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Managerial Accounting
Solutions
Managerial Accounting
Statement of cash flows—indirect method
The comparative balance sheet of Yellow Dog Enterprises Inc. at December 31, 20Y8 and 20Y7, is as follows:
Additional data obtained from the income statement and from an examination of the accounts in the ledger for 20Y8 are as follows:
- a. Net income, $250,000.
- b. Depreciation reported on the income statement, $135,000.
- c. Equipment was purchased at a cost of $420,000 and fully depreciated equipment costing $90,000 was discarded, with no salvage realized.
- d. The mortgage note payable was not due for six years, but the terms permitted earlier payment without penalty.
- e. 30,000 shares of common stock were issued at $20 for cash.
- f. Cash dividends declared and paid, $45,000.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Prepare a statement of cash flows using the indirect method for presenting cash flows from operating activities.
Explanation of Solution
Statement of cash flows:
It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method:
Under this method, the following amounts are to be adjusted from the net income to calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
| Y Incorporation | ||
| Statement of Cash Flows – Indirect Method | ||
| For the Year Ended December 31, 20Y8 | ||
| Details | Amount ($) | Amount ($) |
| Cash flows from operating activities: | ||
| Net income | 250,000 | |
| Adjustments to reconcile net income to net cash flow from operating activities: | ||
| Depreciation expense | 135,000 | |
| Changes in current operating assets and liabilities: | ||
| Decrease in accounts receivable | 20,000 | |
| Increase in inventories | (70,000) | |
| Increase in prepaid expense | (10,000) | |
| Increase in accounts payable | 25,000 | 100,000 |
| Net cash provided by operating activities | $350,000 | |
| Cash flows from investing activities: | ||
| Cash used for purchase of equipment | (420,000) | |
| Net cash used for investing activities | ($420,000) | |
| Cash flows from financing activities: | ||
| Cash received from sale of common s... | ||
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