Following are the data for Larson Co. for the year ending December 31 Year 2, an
ID: 2476164 • Letter: F
Question
Following are the data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1 and the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that:
The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000.
1
Year 2
Year 1
2
Cash
$100,000.00
$78,000.00
3
Accounts receivable (net)
78,000.00
85,000.00
4
Inventories
101,500.00
90,000.00
5
Equipment
410,000.00
370,000.00
6
Accumulated depreciation
(150,000.00)
(158,000.00)
7
$539,500.00
$465,000.00
8
Accounts payable (merchandise creditors)
$58,500.00
$55,000.00
9
Cash dividends payable
5,000.00
4,000.00
10
Common stock, $10 par
200,000.00
170,000.00
11
Paid-in capital in excess of par—common stock
62,000.00
60,000.00
12
Retained earnings
214,000.00
176,000.00
13
$539,500.00
$465,000.00
Required:
Equipment costing $125,000 was purchased for cash. Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000. The stock was issued for cash.Explanation / Answer
Indirect Method Cash Flow Statement Cash Flows From Operating Activities $ $ Net Profit Before Taxation And Extraordinary Item 51,000 Adjustments Depreciation 57,000 loss on sale of assets 5,000 62,000 Operating profit before working capital changes 113,000 Working capital changes: Increase in Current Assets (-) Inventories -11,500 Decrease in Current Assets (+) Accounts Receivable (Net) 7,000 Increase in Current Liabilities (+) Accounts payable (merchandise creditors) 3,500 Dividen payable 1,000 0 Decrease in Current Liabilities (-) Cash Generated From Operations 113,000 Cash Flows From Investing Activities Cash receipts from Sale/Disposal of Equipment sold 15,000 Cash paid for Purchase/Acquisition of Equipment purchased -125,000 Net cash from/used in investing activities -110,000 Cash Flows From Financing Activities Cash receipts from Issue/Sale/Disposal of Common Stock 30,000 Paid-in capital in excess of par—common stock 2,000 Cash paid for Purchase/Acquisition/Repayment of Dividend Paid -12,000 Net cash used in financing activities 20,000 Net increase in cash and cash equivalents 22,000 Cash and cash equivalents at beginning of period 78,000 Cash and cash equivalents at end of period 100,000