The comparative balance sheet of TechSource at December 31, 20Y7 and 20Y6, is as follows:
TECHSOURCE
Comparative Balance Sheets
December 31, 20Y7 and 20Y6
20Y7 20Y6 Changes
Increase
(Decrease)
Assets
Current assets:
Cash $52,650 $36,200 $16,450
Accounts receivable 91,080 53,000 38,080
Inventory 62,150 59,700 2,450
Estimated returns inventory 5,300 4,300 1,000
Office supplies 480 600 (120)
Prepaid insurance 2,650 3,000 (350)
Total current assets $214,310 $156,800 $57,510
Property, plant, and equipment:
Land $20,000 $20,000 $0
Store equipment 27,100 20,000 7,100
Accumulated depreciation—store equipment (5,700) (2,600) (3,100)
Office equipment 15,570 10,000 5,570
Accumulated depreciation—office equipment (4,720) (2,230) (2,490)
Total property, plant, and equipment $52,250 $45,170 $7,080
Total assets $266,560 $201,970 $64,590
Liabilities
Current liabilities:
Accounts payable $12,466 $5,216 $7,250
Customer refunds payable 7,954 7,454 500
Estimated coupons payable 2,000 1,600 400
Notes payable (current portion) 5,000 5,000 0
Salaries payable 1,140 1,500 (360)
Unearned rent 1,800 2,400 (600)
Total current liabilities $30,360 $23,170 $7,190
Notes payable 20,000 25,000 (5,000)
Total liabilities $50,360 $48,170 $2,190
Stockholders' Equity
Common stock $25,000 $25,000 $0
Retained earnings 191,200 128,800 62,400
Total stockholders' equity $216,200 $153,800 $62,400
Total liabilities and stockholders' equity $266,560 $201,970 $64,590
Additional data obtained from an examination of the accounts in the ledger for 20Y7 are as follows:
Store equipment was acquired for $7,100 cash.
Office equipment was acquired for $5,570 cash.
Principal relating to the notes payable of $5,000 was paid.
There was a $80,400 increase in Retained Earnings for net income.
There was a $18,000 decrease in Retained Earnings for cash dividends declared.
Required:
Prepare a statement of cash flows, using the indirect method of presenting cash flows from (used for) operating activities. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.
To prepare the statement of cash flows using the indirect method, we will categorize the cash flows into operating, investing, and financing activities.
1. Cash Flows from Operating Activities
Net income:
- Increase in Retained Earnings due to net income: $80,400
Adjustments to reconcile net income to net cash provided by operating activities:
- Depreciation expense:
- Store equipment: 3,100
- Office equipment: 2,490
- Increase in accounts receivable: (91,080−53,000)=(38,080)
- Increase in inventory: (62,150−59,700)=(2,450)
- Increase in estimated returns inventory: (5,300−4,300)=(1,000)
- Decrease in office supplies: (480−600)=120
- Decrease in prepaid insurance: (2,650−3,000)=350
- Increase in accounts payable: (12,466−5,216)=7,250
- Increase in customer refunds payable: (7,954−7,454)=500
- Increase in estimated coupons payable: (2,000−1,600)=400
- Decrease in salaries payable: (1,140−1,500)=(360)
- Decrease in unearned rent: (1,800−2,400)=(600)
Net cash provided by operating activities:
Net incomeAdjustments:Depreciation expenseIncrease in accounts receivableIncrease in inventoryIncrease in estimated returns inventoryDecrease in office suppliesDecrease in prepaid insuranceIncrease in accounts payableIncrease in customer refunds payableIncrease in estimated coupons payableDecrease in salaries payableDecrease in unearned rentNet cash provided by operating activities80,4003,100+2,490=5,590(38,080)(2,450)(1,000)1203507,250500400(360)(600)52,1202. Cash Flows from Investing Activities
Cash outflows:
- Purchase of store equipment: 7,100
- Purchase of office equipment: 5,570
Net cash used for investing activities:
(7,100+5,570)=(12,670)3. Cash Flows from Financing Activities
Cash inflows/outflows:
- Payment of notes payable: 5,000
- Payment of cash dividends: 18,000
Net cash used for financing activities:
(5,000+18,000)=(23,000)Summary of Cash Flows
Net increase in cash:
52,120−12,670−23,000=16,450Cash at the beginning of the year:
36,200Cash at the end of the year:
36,200+16,450=52,650The cash at the end of the year matches the balance sheet amount.
Here is the statement of cash flows using the indirect method:
TechSource
Statement of Cash Flows
For the Year Ended December 31, 20Y7
Cash flows from operating activities:
Net incomeAdjustments to reconcile net income to net cash provided by operating activities:Depreciation expenseIncrease in accounts receivableIncrease in inventoryIncrease in estimated returns inventoryDecrease in office suppliesDecrease in prepaid insuranceIncrease in accounts payableIncrease in customer refunds payableIncrease in estimated coupons payableDecrease in salaries payableDecrease in unearned rentNet cash provided by operating activities$80,4005,590(38,080)(2,450)(1,000)1203507,250500400(360)(600)52,120Cash flows from investing activities:
Cash paid for purchase of store equipmentCash paid for purchase of office equipmentNet cash used for investing activities(7,100)(5,570)(12,670)Cash flows from financing activities:
Payment of notes payablePayment of cash dividendsNet cash used for financing activities(5,000)(18,000)(23,000)Net increase in cash:
16,450Cash at the beginning of the year:
36,200Cash at the end of the year:
52,65052,650 52,650