The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

SWEET VALLEY, INC.

Statement of Cash Flows

For the year ended December 31, 2018

Cash Flows From Operating Activities:

Net Income

$107,500

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$14,500

Increase in account receivables

($1,300)

Decrease in merchandise inventory

$12,000

Increase in account payable

$5,500

Decrease in accrued liabilities

($1,900)

Net cash provided/ (used) in operating activities

$136,300

Cash Flows From Investing Activities:

Purchase of plant

($20,700)

Net cash provided/ (used) in investing activities

($20,700)

Cash Flows From Financing Activities:

Issuance of common stock

$23,400

Payment of notes payable ($105,000-$78,000)

($27,000)

Dividend paid

($80,200)

Net cash provided/ (used) in financing activities

($83,800)

Net increase/(Decrease) in cash

$10,900

Cash Balance, December 31, 2017

$15,400

Cash Balance, December 31, 2018

$26,300

SWEET VALLEY, INC.

Statement of Cash Flows (Partial)

For the year ended December 31, 2018

Non-cash Investing and financing activities

Acquisition of land by issuing long-term notes payable

$20,900

Total Non-cash Investing and financing activities

$20,900