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|
|Property, plant & equipment||236,500||150,000|
|Long-term notes payable||70,000||50,000|
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.
Statement of Cash Flow
For the fiscal year ending December 31, 2015
|Cash flows from operating activities|
|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|
|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:
from Accounting 301: Applied Managerial AccountingChapter 15 / Lesson 3