Prepare a Statement of Cash Flows, Indirect Method. Madison, Inc.’s most recent
ID: 2579957 • Letter: P
Question
Prepare a Statement of Cash Flows, Indirect Method. Madison, Inc.’s most recent balance sheet, income statement, and other important information for 2017 are presented as follows.
Additional data for 2017 are as follows:
Sold equipment with a book value of $30,000 (= $40,000 cost $10,000 accumulated depreciation) for $28,000 cash
Purchased equipment for $96,000 cash
There were no sales of long-term investments (Hint: Solve for the purchase of long-term investments.)
Issued bonds for $16,000 cash
Repurchased common stock (treasury shares) for $45,000 cash
Declared and paid $12,000 in cash dividends
Required:
A) Use the four steps described in the chapter to prepare a statement of cash flows for the year ended December 31, 2017, using the indirect method. Refer to the format presented in Figure 12.8 “ Statement of Cash Flows (Home Store, Inc.)”.
B) Briefly describe the major changes in cash identified in the statement of cash flows.
Home Store, Inc. Statement of Cash Flows for the Year Ended December 31, 2016 Cash flows from operating activities Net income Adjustments (to convert net income to cash provided by operating activities) $ 124,000 Add back depreciation expense Add back loss on sale of equipment Increase in accounts receivable Increase in merchandise inventory Decrease in prepaid expenses Increase in accounts payable Decrease in income tax payable 24,000 6,000 (60,000) (66,000) 2,000 1,000 (9,000) Step 1 Cash provided by operating activities $ 22,000 Cash flows from investing activitiesb Purchase of equipment Proceeds from sale of equipment Purchase of long-term investments (67,000) 5,000 (12,000) Step 2 Cash used by investing activities (74,000) Cash flows from financing activities Principal payment on bonds Proceeds from issuance of common stock Payment of cash dividends (18,000) 4,000 (32,000) Step 3 Cash used by financing activities (46,000) Net decrease in cash Cash at beginning of yeard Cash at end of yeard $ (98,000) 130,000 $ 32,000 Step 4Explanation / Answer
Cash Flow from Operating Activities
Operating Activities are the main business activities i.e. in which the firm deals. Firm generated $114,000 cash from Operating Activies, It means that he company is earning good from its business activities and shows a healthy growth and earning. It means the cash flow from main business is good and shows good future growth.
Cash Flow from Investing Activities
Investing Activities are the activities which are related to the fixed assets of the firm. Firm used $119,000 in investing activities that means that the firm is investing in long term assets that will help the firm in long run to generate revenue and will help the business to growth.
Cash Flow from Financing Activities
Financing Activities are the activities which are related to the Equity and Debt of the Firm. Firm used $41,000 in financing activities i.e. firm buybacked its shares which will decrease outside capital in the firm and give more powers to the management and will decrease the furture dividend of the company which will lead to more profit for the business.
Overall the Firm's cash flow is good