P 12-1A. Statement of Cash Flows (Indirect Method)

The Wolff Company's income statement and comparative balance sheets at December 31 of 2016 and 2016 are shown below:

WOLFF COMPANY

Income Statement

For the Year Ended December 31, 2016

Sales revenue

$645,000

Cost of goods sold.

$430,000

Wages expense

86,000

Insurance expense

12,000

Depreciation expense

13,000

Interest expense

12,000

Income tax expense.

29,000

582,000

Net income..

$63,000

WOLFF COMPANY

Balance Sheets

Dec. 31,

Dec. 31,

2016

2015

Assets

Cash.

$52,000

$8,000

Accounts receivable.

41,000

32,000

Inventory..

90,000

60,000

Prepaid insurance.

5,000

7,000

Plant assets.

219,000

195,000

Accumulated depreciation.

(68,000)

(55,000)

Total assets.

$339,000

$247,000

Liabilities and Stockholders' Equity

Accounts payable..

$7,000

$10,000

Wages payable.

9,000

6,000

Income tax payable..

6,000

7,000

Bonds payable..

141,000

75,000

Common stock..

90,000

90,000

Retained earnings.

86,000

59,000

Total liabilites and stockholders' equity.

$339,000

$247,000

Cash dividends of $36,000 were declared and paid during 2016. Plant assets were purchased for cash and bonds payable were issued for cash. Bond interest is paid semi-annually on June 30 and December 31. Accounts payable relate to merchandise purchases.

a. Calculate the change in cash that occurred during 2016.

b. Prepare a statement of cash flows using the indirect method.

Parts C through E will not be graded, but are good practice.

c. Compute free cash flow.

d. Compute the operating-cash-flow-to-current-liabilities ratio.

e. Compute the operating-cash-flow-to-capital-expenditures ratio.

a.

Cash, Dec. 31, 2016

- Cash, Dec. 31, 2015

Change in cash

b.

WOLFF COMPANY

Statement of Cash Flows

For Year Ended December 31, 2016

Cash flow from operating activities

Net income

Add (deduct) items to convert net income to cash basis

Cash provided by operating activities

38,000

Cash flow from investing activities

Cash flow from financing activities

Cash provided by financing activities

30,000

Net increase in cash

44,000

Cash at beginning of year

Cash at end of year

c.

Free cash flow =

Not graded

d.

Operating-cash-flow-to-current-liabilities ratio =

Not graded

e.

Operating-cash-flow-to-capital-expenditures ratio =

Not graded