Dec. 31, 2014 Dec. 31, 2013
Assets
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665,280 592,200
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,880 1,022,560
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,640 25,200
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,400 302,400
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,713,600 1,134,000
Accumulated depreciation—buildings . . . . . . . . . . . . . . . . . . . . . (466,200) (414,540)
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781,200 781,200
Accumulated depreciation—machinery and equipment . . . . . (214,200) (191,520)
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,960 112,000$4,251,800 $3,724,420
Liabilities and Stockholders’ Equity
Accounts payable (merchandise creditors) . . . . . . . . . . . . . . . . . . $ 837,480 $ 927,080
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,760 25,200
Salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,960 87,080
Mortgage note payable, due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . 224,000 0
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 390,000
Common stock, $5 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,400 50,400
Paid-in capital: Excess of issue price over par—common stock . . . . . . . 366,000 126,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,512,200 2,118,660
$4,251,800 $3,724,420
An examination of the income statement and the accounting records revealed the following additional information applicable to 2014:
a. Net income, $524,580.
b. Depreciation expense reported on the income statement: buildings, $51,660; machinery and equipment, $22,680.
c. Patent amortization reported on the income statement, $5,040.
d. A building was constructed for $579,600.
e. A mortgage note for $224,000 was issued for cash.
f. 30,000 shares of common stock were issued at $13 in exchange for the bonds payable.
g. Cash dividends declared, $131,040.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Answer:
HARRIS INDUSTRIES INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities:
Net income $ 524,580
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation 74,340
Patent amortization 5,040
Changes in current operating assets
and liabilities:
Increase in accounts receivable (73,080)
Decrease in inventories 134,680
Increase in prepaid expenses (6,440)
Decrease in accounts payable (89,600)
Decrease in salaries payable (8,120)
Net cash flow from operating activities $ 561,400
Cash flows from investing activities:
Cash paid for construction of building $(579,600)
Net cash flow used for investing activities (579,600)
Cash flows from financing activities:
Cash received from issuance of mortgage note $ 224,000
Less: Cash paid for dividends* (123,480)
Net cash flow from financing activities 100,520
Increase in cash $ 82,320
Cash at the beginning of the year 360,920
Cash at the end of the year $ 443,240
Schedule of Noncash Financing and Investing Activities:
Issuance of common stock to retire bonds $ 390,000
*$131,040 + $25,200 – $32,760 = $123,480
HARRIS INDUSTRIES 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 360,920 (p) 82,320 443,240
Accounts receivable (net) 592,200 (o) 73,080 665,280
Inventories 1,022,560 (n) 134,680 887,880
Prepaid expenses 25,200 (m) 6,440 31,640
Land 302,400 302,400
Buildings 1,134,000 (l) 579,600 1,713,600
Accum. depr.—buildings (414,540) (k) 51,660 (466,200)
Machinery and equipment 781,200 781,200
Accum. depr.—machinery and
equipment (191,520) (j) 22,680 (214,200)
Patents 112,000 (i) 5,040 106,960
Accounts payable (927,080) (h) 89,600 (837,480)
Dividends payable (25,200) (g) 7,560 (32,760)
Salaries payable (87,080) (f) 8,120 (78,960)
Mortgage note payable 0 (e) 224,000 (224,000)
Bonds payable (390,000) (d) 390,000 0
Common stock, $5 par (50,400) (c) 150,000 (200,400)
Paid-in capital in excess of
par—common stock (126,000) (c) 240,000 (366,000)
Retained earnings (2,118,660) (b) 131,040 (a) 524,580 (2,512,200)
Totals 0 1,360,200 1,360,200 0
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.
HARRIS INDUSTRIES 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
Operating activities:
Net income (a) 524,580
Depreciation—buildings (k) 51,660
Depreciation—machinery
and equipment (j) 22,680
Amortization of patents (i) 5,040
Increase in accounts
receivable (o) 73,080
Decrease in inventories (n) 134,680
Increase in prepaid expenses (m) 6,440
Decrease in accounts payable (h) 89,600
Decrease in salaries payable (f) 8,120
Investing activities:
Construction of building (l) 579,600
Financial activities:
Declaration of cash dividends (b) 131,040
Issuance of mortgage note
payable (e) 224,000
Increase in dividends payable (g) 7,560
Schedule of noncash investing
and financing activities:
Issuance of common stock
to retire bonds (c) 390,000 (d) 390,000
Net increase in cash (p) 82,320
Totals 1,360,200 1,360,200