Chapter 16, Problem 4APSA

To determine

Concept Introduction:

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

• Cash flows from operating activities
• Cash Flows from investing activities
• Cash flows from financing activities

(Note: Cash flows from operating activities can be prepared using direct or indirect method)

To Prepare:

The Cash Flow statement using the indirect method and Analysis of changes

Answer to Problem 4APSA

The Cash Flow statement using the indirect method and Analysis of changes is as follows:

FORTEN COMPANY
Cash Flow Statements
Indirect Method
for the year ended Dec. 31, 2015
Cash flows from operating activities:
Net income	$ 114,975
Add: Depreciation Expense	$ 20,750
Add: Loss on Sale of Equipment	$ 5,125
Less: Increase in Accounts receivables	$ (15,185)
Less: Increase in Inventory	$ (23,856)
Add: Decrease in Prepaid Expense	$ 625
Less: Decrease in Accounts Payable	$ (61,534)
Cash provided by operating activities		$ 40,900
Cash Flows from investing activities:
Cash Proceeds from sale of equipment	$ 11,625
Cash paid for Purchase of Equipment	$ (30,000)
Cash used by investing activities:		$(18,375)
Cash flows from financing activities:
Cash Receipts from Issuance of Stock (12500+37500)	$ 50,000
Cash Dividends paid	$ (50,100)
Repayment of Long Term Notes Payable	$ (50,125)
Cash Proceeds from Short term notes payable	$ 4,000
Cash used by financing activities:		$(46,225)
Net Cash Flows		$(23,700)
Add: Beginning Balance of Cash		$ 73,500
Ending Balance of Cash		$ 49,800

Explanation of Solution

The Cash Flow statement using the indirect method and Analysis of changes is explained as follows:

FORTEN COMPANY
Cash Flow Statements
Indirect Method
for the year ended Dec. 31, 2015
Cash flows from operating activities:
Net income	$ 114,975
Add: Depreciation Expense	$ 20,750
Add: Loss on Sale of Equipment	$ 5,125
Less: Increase in Accounts receivables	$ (15,185)
Less: Increase in Inventory	$ (23,856)
Add: Decrease in Prepaid Expense	$ 625
Less: Decrease in Accounts Payable	$ (61,534)
Cash provided by operating activities		$ 40,900
Cash Flows from investing activities:
Cash Proceeds from sale of equipment	$ 11,625
Cash paid for Purchase of Equipment	$ (30,000)
Cash used by investing activities:		$(18,375)
Cash flows from financing activities:
Cash Receipts from Issuance of Stock (12500+37500)	$ 50,000
Cash Dividends paid	$ (50,100)
Repayment of Long Term Notes Payable	$ (50,125)
Cash Proceeds from Short term notes payable	$ 4,000
Cash used by financing activities:		$(46,225)
Net Cash Flows		$(23,700)
Add: Beginning Balance of Cash		$ 73,500
Ending Balance of Cash		$ 49,800