Question

The Murdock Corporation reported the following balance sheet data for 2016 and 2015:
2016 2015
Cash $ 96,245 $ 33,155
Available-for-sale securities (not cash equivalents) 24,000 102,000
Accounts receivable 97,000 83,550
Inventory 182,000 160,300
Prepaid insurance 3,030 3,700
Land, buildings, and equipment 1,284,000 1,142,000
Accumulated depreciation (627,000) (589,000)
Total assets $ 1,059,275 $ 935,705
Accounts payable $ 91,640 $ 165,670
Salaries payable 26,800 33,000
Notes payable (current) 40,300 92,000
Bonds payable 217,000 0
Common stock 300,000 300,000
Retained earnings 383,535 345,035
Total liabilities and shareholders' equity $ 1,059,275 $ 935,705
Additional information for 2016:
Sold available-for-sale securities costing $78,000 for $84,200.
Equipment costing $20,000 with a book value of $6,700 was sold for $8,550.
Issued 6% bonds payable at face value, $217,000.
Purchased new equipment for $162,000 cash.
Paid cash dividends of $28,500.
Net income was $67,000.
Required:
Prepare a statement of cash flows for 2016 in good form using the indirect method for cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

The Murdock Corporation

Statement of Cash Flows for the year ended December 31, 2016, using the indirect method:

Operating Activities:

Net Income                          $67,000

Add depreciation                   38,000

Accounts receivable           -$13,450

Inventory                             -$21,700

Accounts payable              -$74,030

Salaries payable                  -$6,200

Notes payable (current)     -$51,700

Net cash from operations                  -$62,080

Investing Activities:

Sale of securities             $84,200

Sale of Equipment             $8,550

New Equipment            -$162,000

Net cash from investing activities     -$69,250

Financing Activities:

Issue of bonds               $217,000

Dividends                       -$28,500

Net cash from financing activities     $188,500

Net cash flows                                      $57,170

Explanation:

a) Data and Calculations:

Balance Sheet for 2016 and 2015:

                                                          2016                  2015

Cash                                               $ 96,245          $ 33,155

Available-for-sale securities

 (not cash equivalents)                   24,000           102,000

Accounts receivable                        97,000            83,550

Inventory                                         182,000          160,300

Prepaid insurance                              3,030              3,700

Land, buildings, and equipment 1,284,000       1,142,000

Accumulated depreciation          (627,000)       (589,000)

Total assets                             $ 1,059,275       $ 935,705

Accounts payable                        $ 91,640        $ 165,670

Salaries payable                            26,800             33,000

Notes payable (current)                40,300             92,000

Bonds payable                             217,000               0

Common stock                           300,000          300,000

Retained earnings                      383,535           345,035

Total liabilities and shareholders'

 equity                                  $ 1,059,275        $ 935,705

Additional information for 2016:

Proceeds from sale of securities = $84,200

Proceeds from sale of Equipment = $8,550

Proceeds from issue of bonds = $217,000

Cash Payments:

New Equipment = $162,000

Dividends = $28,500

Net Income for the year = $67,000

Depreciation:

2016 accumulated depreciation = $627,000

2015 accumulated depreciation =   589,000

Depreciation charge for 2016 =      $38,000

Net Increases/decreases in working capital:

                                               2016             2015       Cash Effect

Accounts receivable             97,000          83,550     ($13,450)

Inventory                             182,000         160,300     ($21,700)

Accounts payable                 91,640         165,670     ($74,030)

Salaries payable                  26,800           33,000      ($6,200)

Notes payable (current)      40,300           92,000     ($51,700)

The Murdock Corporation's Statement of Cash Flows is one of the financial statements that are prepared at the end of the accounting period to show the inflow and outflow of cash during the period.  It shows the cash flows from operating, investing, and financing activities of the corporation.  There are two methods for preparing this statement: the direct method and the indirect method.  The direct method shows the actual inflows and outflows for operating activities while the indirect method starts with the net income to reconcile the accrual basis of accounting to the cash basis.