The balance sheets for ABC Company showed the following information. Additional information...


The balance sheets for ABC Company showed the following information. Additional information concerning transactions and events during 2015 are presented below.

ABC balance sheet 2015 2014
Cash     35,900     10,200
Accounts receivable     38,300     20,300
Inventory     35,000     42,000
Long-term investment             0     15,000
Property, plant & equipment   236,500   150,000
Accumulated depreciation   (37,700)   (25,000)
Total $308,000 $212,500
Accounts payable    17,000     26,500
Accrued liabilities     21,000     17,000
Long-term notes payable     70,000     50,000
Common stock   130,000     90,000
Retained earning    70,000    29,000
$308,000 $212,000

Additional data:

     1. Net income for the year ended December 31, 2015, $71,000.

     2. Depreciation on plant assets for the year, $12,700.

     3. Sold the long-term investments for $28,000 (assume gain or loss is ordinary).

     4. Paid cash dividends of $30,000.

     5. Purchased machinery costing $26,500, paid cash.

     6. Purchased machinery and received a $60,000 long-term note loan (assume no cash was received or paid by the company in this transaction).

     7. Paid a $40,000 long-term note payable by issuing common stock.


Prepare a statement of cash flows (using the indirect method for the operating activities section) for 2015 for ABC Company.

Statement of Cash Flow:

The statement of cash flow reconciles changes in the cash account over two periods. The statement includes three sections; operating, investing, and financing activities.

Answer and Explanation:

The statement of cash flow combines the activity of the most current income statement and the last two balance sheets to reconcile the changes in cash accounts over two periods. When preparing a statement of cash flow it is important to remember that increases (Debits) in assets and decreases (Debits) in liabilities and equity are uses of cash and decreases (Credits) in assets and increases (Credits) in liabilities and equity are sources of cash.

The operating section of the statement of cash flow, as demonstrated by the indirect method below, begins with net income from the income statement and adds depreciation, amortization, and other non-cash expenses to determine cash income or loss. The statement then accounts for changes in working capital items from the balance sheet. The investing activities section accounts for changes in non-current assets while the financing activities section accounts for changes in non-current liabilities and equity sections of the balance sheets. Once all sections of the statement are completed the combined net effects are then combined with beginning cash flow to determine the ending cash balances.

ABC Company

Statement of Cash Flow

For the fiscal year ending December 31, 2015

Cash flows from operating activities
Profit 71,000
Adjustments for:
Depreciation Expense 12,700
Working capital changes:
(Increase) / Decrease in accounts receivable -18,000
(Increase) / Decrease in inventories 7,000
Increase / (Decrease) in Accounts Payable -9,500
Increase / (Decrease) in Accrued liabilities 4,000
Net cash generated (used) from operating activities 67,200
Cash flows from investing activities
Net Change to Fixed Assets -86,500
Sale (Acquisition) of portfolio investments 15,000
Net cash used in investing activities -71,500
Cash flows from financing activities
Proceeds (Repurchase) from the issue of share capital 40,000
Proceeds (payments) from long-term borrowings 20,000
Dividends -30,000
Net cash used in financing activities 30,000
Net increase in cash and cash equivalents 25,700
Cash and cash equivalents at beginning of period 10,200
Cash and cash equivalents at end of period 35,900

Learn more about this topic:

Preparing a Cash Flow Statement by the Indirect Method

from Accounting 301: Applied Managerial Accounting

Chapter 15 / Lesson 3

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