Preparing the statement of cash flows-indirect method with non-cash transactions
ID: 2420125 • Letter: P
Question
Preparing the statement of cash flows-indirect method with non-cash transactions The 2015 income statement and comparative balance sheet of Rolling Hills, Inc. follow: Additionally, Rolling Hills purchased land of $23,600 by financing it 100% with long-term notes payable during 2015. 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 $11,560. Prepare the 2015 statement of cash flows, formatting operating activities by the indirect method. How will what you learned in this problem help you evaluate an investment?Explanation / Answer
1. Rolling Hills, Inc. Statement of Cash Flows using Indirect Method for the year ended December 31 2015 (All amounts in $) Cash Flows from Operating Activities Net Income for the year 97800 Add : Depreciation Expense 14400 Add : Interest Expense 21900 Add : Income Tax Expense 19100 55400 Cash Flow before Working Capital changes 153200 Less : Increase in Accounts Receivable -1200 Add : Decrease in Inventory 11900 Add : Increase in Accounts Payable 4900 Less : Decrease in Accrued Liabilities -2100 13500 Net Cash Flows from Operating Activities 166700 Cash Flows from Investing Activities Purchase of Land -23600 Purchase of Plant Assets -28600 -52200 Cash Flows from Financing Activities Issue of Common Stock 23900 Issue of Notes Payable 23600 Repayment of Notes Payable -46600 Dividends Paid -63900 Interest Expense -21900 Income Tax Expense -19100 -104000 Net Cash Inflows for the year 10500 Cash/Cash Equivalents as on January 1, 2015 15900 Cash/Cash Equivalents as on December 31, 2015 26400 2. Evaluation of the investment depends primarily on the cash inflows and outflows of the Company. Since from this statement, it can be checked that the cash outflows of the Company are more than its inflows, it does not qualify for a sound investment.