Dec. 31, 2014 Dec. 31, 2013
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219,900 $ 269,700
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,900 363,000
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482,400 448,800
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,100 14,400Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982,500 805,500
Accumulated depreciation—equipment . . . . . . . . . . . . . . . . . . . . . . . . . (256,200) (198,300)
$1,785,600 $1,703,100
Liabilities and Stockholders’ Equity
Accounts payable (merchandise creditors) . . . . . . . . . . . . . . . . . . . . . . . $ 375,300 $ 356,400
Mortgage note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 504,000
Common stock, $25 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,000 36,000
Paid-in capital: Excess of issue price over par—common stock . . . . . 705,000 480,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,300 326,700
$1,785,600 $1,703,100
Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2014 are as follows:
a. Net income, $198,000.
b. Depreciation reported on the income statement, $125,100.
c. Equipment was purchased at a cost of $244,200, and fully depreciated equipment costing $67,200 was discarded, with no salvage realized.
d. The mortgage note payable was not due until 2016, but the terms permitted earlier payment without penalty.
e. 15,000 shares of common stock were issued at $40 for cash.
f. Cash dividends declared and paid, $230,400.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Answer:
LANKAU ENTERPRISES INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income $ 198,000
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation 125,100
Changes in current operating assets
and liabilities:
Decrease in accounts receivable 26,100
Increase in inventory (33,600)
Increase in prepaid expenses (5,700)
Increase in accounts payable 18,900
Net cash flow from operating activities $ 328,800
Cash flows from investing activities:
Cash paid for equipment $(244,200)
Net cash flow used for investing
activities (244,200)
Cash flows from financing activities:
Cash received from sale of common stock $ 600,000
Less: Cash paid for dividends $(230,400)
Cash paid to retire mortgage
note payable (504,000) (734,400)
Net cash flow used for financing
activities (134,400)
Decrease in cash $ (49,800)
Cash at the beginning of the year 269,700
Cash at the end of the year $ 219,900
LANKAU ENTERPRISES INC.
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 269,700 (l) 49,800 219,900
Accounts receivable (net) 363,000 (k) 26,100 336,900
Merchandise inventory 448,800 (j) 33,600 482,400
Prepaid expenses 14,400 (i) 5,700 20,100
Equipment 805,500 (h) 244,200 (g) 67,200 982,500
Accum. depr.—equipment (198,300) (g) 67,200 (f) 125,100 (256,200)
Accounts payable (356,400) (e) 18,900 (375,300)
Mortgage note payable (504,000) (d) 504,000 0
Common stock, $25 par (36,000) (c) 375,000 (411,000)
Paid-in capital in excess
of par—common stock (480,000) (c) 225,000 (705,000)
Retained earnings (326,700) (b) 230,400 (a) 198,000 (294,300)
Totals 0 1,085,100 1,085,100 0
Operating activities:
Net income (a) 198,000
Depreciation (f) 125,100
Decrease in accts. receivable (k) 26,100
Increase in merchandise
inventory (j) 33,600
Increase in prepaid expenses (i) 5,700
Increase in accounts payable (e) 18,900
Investing activities:
Purchase of equipment (h) 244,200
Financing activities:
Payment of cash dividends (b) 230,400
Sale of common stock (c) 600,000
Payment of mortgage note
payable (d) 504,000
Net decrease in cash (l) 49,800
Totals 1,017,900 1,017,900
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.