Use the following information to prepare a statement of cash flows (indirect met
ID: 3216299 • Letter: U
Question
Use the following information to prepare a statement of cash flows (indirect method) for Cambridge Technology for the year ended December 31, 2017:
Net income for the year 2017 was $5,000. Accounts receivable decreased $2,000, while inventories increased $4,000, and accounts payable decreased $7,000. Depreciation expense included in net income was $8,000.
During the year, a piece of land held for future expansion was sold for its book value of $8,000 and a new service truck was purchased for $14,000.
The company borrowed $18,000 on a two-year note from the bank. Dividends of $6,000 were paid in cash. Preferred stock was issued to retire $7,000 of long-term notes payable.
The beginning cash balance was $10,000 and the ending balance was $20,000.
Explanation / Answer
Cash flows from operating activities:
Net income = $5,000
Add (or deduct) items not affecting cash:
Depriciation expense = 8,000
Accounts receivable decreased = 2,000
Inventory increase = 4,000
Accounts payable decrease = 7,000
Net cash flow from operating activities = $4,000
Cash flow from investing activities:
Cash received from sale of land = 8,000
Cash paid for new truck = 14,000
Net cash flow from investing activities = 6,000
Cash flows from financing activities:
Cash paid for dividends = 6,000
Cash received from note payable borrowing = 18,000
Net cash flow from financing activities = 12,000
Net increase in cash during 2017 = 10,000
Add beginning cash balanec = 10,000
Ending cash balance = 20,000