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The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows: Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows: a. The investments were sold for $175,000 cash. b. Equipment and land were acquired for cash. c. There were no disposals of equipment during the year. d. The common stock was issued for cash. e. There was a $500,000 credit to Retained Earnings for net income. f. There was a $90,000 debit to Retained Earnings for cash dividends declared. Instructions Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 1PA
Textbook Problem
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The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

Chapter 16, Problem 1PA, The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows:

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 $500,000 credit to Retained Earnings for net income.
  6.      f.          There was a $90,000 debit to Retained Earnings for cash dividends declared.

Instructions

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

To determine

Prepare 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.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (2)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         Dividend received
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (3)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations...

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Chapter 16 Solutions

Financial Accounting
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