Chapter 14: Q2TI (page 751)

Question: Owl, Inc.’s accountants have assembled the following data for the year ended December 31, 2018: Cash receipt from sale of equipment $ 20,000
Depreciation expense 12,000
Cash payment of dividends 4,000
Cash receipt from issuance of common stock 12,000
Net income 30,000
Cash purchase of land 25,000
Increase in current liabilities 10,000
Decrease in current assets other than cash 8,000
Prepare Owl’s statement of cash flows using the indirect method for the year ended December 31, 2018. Assume beginning and ending Cash are $12,000 and $75,000 respectively

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Answer

Cash balance at the end of the year is $75,000.

Step by step solution

Cash flows from operating activities	Amount	Amount
Net Income		$30,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$12,000
Increase in current liabilities	$10,000
Decrease in current assets other than cash	$8,000	$30,000
Net cash provided by operating activities		$60,000

Owl’s Inc. Statement of cash flows Year ended 31st December, 2018
Cash flows from operating activities	Amount	Amount
Net Income		$30,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$12,000
Increase in current liabilities	$10,000
Decrease in current assets other than cash	$8,000	$30,000
Net cash provided by operating activities		$60,000

Cash flows from investing activities
Cash receipt from sale of equipment	$20,000
Cash purchase of land	($25,000)
Net cash used for investing activities		($5,000)

Cash flows from financing activities
Cash receipt from issuance of common stock	$12,000
Cash payment of dividends	($4,000)
Net cash provided by financing activities		$8,000
Net Increase/(Decrease) in cash		$63,000
Cash balance, December 31, 2017		$12,000
Cash balance, December 31, 2018		$75,000