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Additional information:

1. Net income for 2021 was 119,000.

2. New equipment was purchased for 10,000. In addition, old equipment which cost 15,000

and had accumulated depreciation of 12,500 was sold for 7,000.

3. Cash dividends of 50,000 were declared and paid.

4. Bonds payable amounting to 100,000 were redeemed for cash 100,000. New bonds were

issued for 20,000 in cash.

5. Share capital ordinary changed due to an issue of ordinary shares in exchange for cash.

6. Land was sold for its book value of 5,000.

Instructions

a) Prepare a statement of cash flows for 2021 using the indirect method.

b) Which of the following statements is wrong

i. An increase in prepaid expenses decreases operating cash flow relative to net income

ii. A decrease in accounts payable decreases operating cash flow relative to net income

iii. A purchase of inventory on account has no impact on operating cash flow (relative to

net income)

iv. A loss from the sale of equipment increases the investment cash flow

2020 2021 Assets Land Equipment Accumulated depreciation - equipment Prepaid expenses Inventory Accounts receivable Cash 90 000 200 000 - 35 000 4 000 180 000 70 000 36 000 85 000 195 000 - 50 000 7 000 170 000 90 000 68 000 Total 545 000 565 000 Equity and Liabilities Share capital - ordinary (EUR 1 par) Retained earnings Bonds payable Accounts payable Total 180 000 160 000 150 000 55 000 216 000 229 000 70 000 50 000 545 000 565 000

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