8. On the basis of the following data for Branch Co. for the current and preceding years ended December 31, prepare a statement of cash flows using the indirect method. Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000. The stock was issued for cash and the only entries in the retained earnings account were for net income of $56,000 and cash dividends declared and paid of $18,000.

Question

Walker Reyes

Business

21 January, 09:10

8. On the basis of the following data for Branch Co. for the current and preceding years ended December 31, prepare a statement of cash flows using the indirect method. Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000. The stock was issued for cash and the only entries in the retained earnings account were for net income of $56,000 and cash dividends declared and paid of $18,000.

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Luz Martinez · Answer 1

The cash flows statement is shown below:

Explanation:

Branch Company

Cash Flows Statement

For the Year Ended on December 31

Cash Flows for Operating Activities:

Net income $56,000

Items to reconcile net income to cash flows for operating activities

Depreciation expense $57,000

Loss on sale of land $5,000

Decrease in accounts receivable $7,000

Increase in inventories ($16,500)

Decrease in accounts payable ($1,500)

Net cash flows for operating activities $107,000

Cash Flows for Investing Activities:

Cash paid for equipment purchased ($125,000)

Cash received for land sold $15,000

Net cash flows for investing activities ($110,000)

Cash Flows from Financing Activities:

Cash received for common stock issued $32,000

Cash paid for dividends ($18,000)

Net cash flows for financing activities $14,000

Net Increase in Cash $11,000 ($107,000 + $14,000 - $110,000)

Cash balance - January 1 $54,000

Cash balance - December 31 $65,000