Dec. 31, 2014 Dec. 31, 2013
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,720 $ 47,940
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,230 188,190
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,520 289,850
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 102,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,800 0
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438,600 358,020
Accumulated depreciation—equipment . . . . . . . . . . . . . . . . . . . . (99,110) (84,320)$1,211,760 $901,680
Liabilities and Stockholders’ Equity
Accounts payable (merchandise creditors) . . . . . . . . . . . . . . . . . . $ 205,700 $194,140
Accrued expenses payable (operating expenses) . . . . . . . . . . . . 30,600 26,860
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,500 20,400
Common stock, $1 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,000 102,000
Paid-in capital: Excess of issue price over par—common stock . . . . . . . 354,000 204,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,960 354,280
$1,211,760 $901,680
Additional data obtained from an examination of the accounts in the ledger for 2014 are as follows:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $91,800 cash.
d. The common stock was issued for cash.
e. There was a $141,680 credit to Retained Earnings for net income.
f. There was a $102,000 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.
Answer:
MERRICK EQUIPMENT CO.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income $141,680
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation 14,790
Loss on sale of investments 10,200
Changes in current operating assets
and liabilities:
Increase in accounts receivable (19,040)
Increase in inventories (8,670)
Increase in accounts payable 11,560
Increase in accrued expenses
payable 3,740
Net cash flow from operating activities $ 154,260
Cash flows from investing activities:
Cash received from sale of investments $ 91,800
Less: Cash paid for purchase of land $295,800
Cash paid for purchase of
equipment 80,580 376,380
Net cash flow used for investing activities (284,580)
Cash flows from financing activities:
Cash received from sale of common stock $250,000
Less: Cash paid for dividends* (96,900)
Net cash flow from financing activities 153,100
Increase in cash $ 22,780
Cash at the beginning of the year 47,940
Cash at the end of the year $ 70,720
*$102,000 + $20,400 – $25,500 = $96,900
MERRICK EQUIPMENT CO.
Spreadsheet (Work Sheet) for Statement of Cash Flows
For the Year Ended December 31, 2014
Account Title
Balance
Dec. 31, 2013
Transactions Balance
Debit Credit Dec. 31, 2014
Cash 47,940 (m) 22,780 70,720
Accounts receivable (net) 188,190 (l) 19,040 207,230
Inventories 289,850 (k) 8,670 298,520
Investments 102,000 (j) 102,000 0
Land 0 (i) 295,800 295,800
Equipment 358,020 (h) 80,580 438,600
Accum. depr.—equipment (84,320) (g) 14,790 (99,110)
Accounts payable (194,140) (f) 11,560 (205,700)
Accrued expenses payable (26,860) (e) 3,740 (30,600)
Dividends payable (20,400) (d) 5,100 (25,500)
Common stock, $1 par (102,000) (c) 100,000 (202,000)
Paid-in capital in excess
of par—common stock (204,000) (c) 150,000 (354,000)
Retained earnings (354,280) (b) 102,000 (a) 141,680 (393,960)
Totals 0 528,870 528,870 0
Operating activities:
Net income (a) 141,680
Depreciation (g) 14,790
Loss on sale of investments (j) 10,200
Increase in accounts
receivable (l) 19,040
Increase in inventories (k) 8,670
Increase in accounts payable (f) 11,560
Increase in accrued expenses
payable (e) 3,740
Investing activities:
Purchase of equipment (h) 80,580
Purchase of land (i) 295,800
Sale of investments (j) 91,800
Financing activities:
Declaration of cash dividends (b) 102,000
Sale of common stock (c) 250,000
Increase in dividends payable (d) 5,100
Net increase in cash (m) 22,780
Totals 528,870 528,870
The letters in the debit and credit columns are included for reference purposes. They do
not correspond to the letters in the additional data section of this problem.