Statement of Cash Flows—Indirect Method
The comparative balance sheet of Merrick Equipment Co. forDecember 31, 20Y9 and 20Y8, is as follows:
| Dec. 31, 20Y9 | Dec. 31, 20Y8 |
| Assets | | |
| Cash | $293,310 | | $275,050 | |
| Accounts receivable (net) | 106,260 | | 98,790 | |
| Inventories | 299,950 | | 292,480 | |
| Investments | 0 | | 113,310 | |
| Land | 153,850 | | 0 | |
| Equipment | 330,950 | | 258,590 | |
| Accumulated depreciation—equipment | (77,480) | | (69,730) | |
| Total assets | $1,106,840 | | $968,490 | |
| | |
| Liabilities and Stockholders'Equity | | |
| Accounts payable | $200,340 | | $190,790 | |
| Accrued expenses payable | 19,920 | | 25,180 | |
| Dividends payable | 11,070 | | 8,720 | |
| Common stock, $10 par | 59,770 | | 47,460 | |
| Paid-in capital: Excess of issue price overpar-common stock | 224,690 | | 131,710 | |
| Retained earnings | 591,050 | | 564,630 | |
| Total liabilities and stockholders’ equity | $1,106,840 | | $968,490 | |
Additional data obtained from an examination of the accounts inthe ledger for 20Y9 are as follows:
Equipment and land were acquired for cash.
There were no disposals of equipment during the year.
The investments were sold for $101,980 cash.
The common stock was issued for cash.
There was a $71,940 credit to Retained Earnings for netincome.
There was a $45,520 debit to Retained Earnings for cashdividends declared.
Required:
Prepare a statement of cash flows, using the indirect method ofpresenting cash flows from operating activities. Use the minus signto indicate cash out flows, cash payments, decreases in cash, orany negative adjustments.
| Merrick Equipment Co. |
| Statement of Cash Flows |
| Forthe Year Ended December 31, 20Y9 |
| Cash flows from operating activities: | | |
| $ | |
| Adjustments to reconcile net income to netcash flow from operating activities: | | |
| Depreciation | | |
| Loss on sale ofinvestments | | |
| Changes in current operating assets andliabilities: | | |
| | |
| | |
| | |
| | |
| Net cash flow from operatingactivities | | $ |
| Cash flows from (used for) investingactivities: | | |
| $ | |
| | |
| | |
| Net cash flow used for investingactivities | | |
| Cash flows from (used for) financingactivities: | | |
| | |
| | |
| Net cash flow from financingactivities | | |
| Increase in cash | | $ |
| Cash at the beginning of the year | | |
| Cash at the end of the year | | $ |
Feedback
The statement of cash flows reports three types of cash flowactivities, as follows:
1. Cash flows from operating activities are the cash flows fromtransactions that affect the net income of the company.
2. Cash flows from (used for) investing activities are the cashflows received from or used for transactions that affectinvestments in the noncurrent assets of the company.
3. Cash flows from (used for) financing activities are the cashflows received from or used for transactions that affect the debtand equity of the company.
The indirect method reports cash flows from operating activities bybeginning with net income and adjusting it for revenues andexpenses that do not involve the receipt or payment of cash. Aprimary advantage of the indirect method is that it reconciles thedifferences between net income and net cash flows fromoperations.
Calculate the increases and decreases in the currentasset/liability accounts over the period. How do these increases ordecreases impact the amount of cash a company has? Were there anypurchases or sales of noncurrent assets during the year? If therewere any sales of noncurrent assets, were these noncurrent assetssold at what the company had initially paid? Or were the assetssold for more or less than the book value? Did the company engagein any activities that affected the equity or debt in theircompany?
