The Cisco Corp. has the following balance sheets at December 31, Cisco Corporati
ID: 2542699 • Letter: T
Question
The Cisco Corp. has the following balance sheets at December 31, Cisco Corporation Comparative Balance Sheets December 31 2018 2017 Assets $100,000 60,000 30,000 13,000 140,000 210,000 55,000 65,000 100,000 18,000 160,000 180,000 (40,000) 250,000 (60,000) Accounts receivable Inventory Prepaid expenses Land Building Accumulated depreciation-building (60,000) 250,000 (75,000) 2018 2017 Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock, $1 par Retained earnings $ 45,000 230,000 270,000 223,000 40,000 270,000 200,000 218,000 S 728.000 Additional information: 1. Operating expenses include depreciation expense of $50,000 and charges from prepaid expenses of $5,000 2 Land was sold for cash of$25,000. 3. Cash dividends of $52,000 were paid 4. Net income for 2018 was $57,000. 5. Equipment was purchased for $90,000 cash In addition, equipment costing $60,000 with a book value of $45,000 was sold for $38,000 cash. 6 $40,000 of bonds were redeemed. 7. Issued 70,000 shares of common stock for $70,000. Instructions: Prepare a statement of cash flows for the year ended December 31, 2018 using the indirect methodExplanation / Answer
Cisco Corporation
Statement of Cash Flows
For the year Ended December 31, 2018 (Amounts in $)
Working Notes:-
1) Increase in current assets and decrease in curent liabilities will be deducted from net income to reconcile the net income to cash flows from operating activities. Similarly, decrease in current assets and increase in curent liabilities will be added to net income.
2) The sale price of land is $ 25,000 and net decrease in book value of land is $20,000. Therefore land is sold at the profit of $5,000 ($25,000 - $20,000) which needs to be deducted from net income as it is a non operating item.
Cash Flows from Operating Activities: Net Income 57,000 Adjustments to reconcile net income to net cash provided by operating activities: Add: Depreciation expense 50,000 Add: Loss on sale of equipment ($45,000 - $38,000) 7,000 Less : Profit on sale of Land ($25,000 Sale price - $20,000 Book value) (5,000) Add: Decrease in Accounts Receivable (65,000 - 60,000) 5,000 Less: Increase in Inventory (130,000 - 100,000) (30,000) Add: Decrease in Prepaid Expenses (18,000 - 13,000) 5,000 Add: Increase in Accounts Payable (45,000 - 40,000) 5,000 Net Cash provided by Operating Activities (A) 94,000 Cash flows from Investing Activities: Cash paid for purchase of Equipment (90,000) Cash flow from sale of equipment 38,000 Cash flow from sale of land 25,000 Net cash used in investing activities (B) (27,000) Cash flows from Financing Activities: Cash received from stock issuance 70,000 Cash paid for cash dividends (52,000) Redemption of bonds payable (40,000) Net cash used in financing activities (C) (22,000) Net Increase (decrease) in cash (D = A+B+C) 45,000 Cash Balance at the beginning of year (E) 55,000 Cash Balance at the end of year (D+E) 100,000