Inflows and Outflows
Response to the following problem:
Alfred Engineering Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Alfred to advise it in the preparation of a statement of cash flows. For the fiscal year ended October 31, 2010, you have obtained the following information concerning certain events and transactions of Alfred:
1. The amount of reported earnings for the fiscal year was $800,000.
2. Depreciation expense of $240,000 was included in the earnings statement.
3. Uncollectible accounts receivable of $30,000 were written off against the allowance for uncollectible accounts. Also, $37,000 of bad debts expense was included in determining earnings for the fiscal year, and the same amount was added to the allowance for uncollectible accounts.
4. A gain of $4,700 was realized on the sale of a machine; it originally cost $75,000, of which $25,000 was undepreciated on the date of sale.
5. On July 2, 2010, a building and land were purchased for $600,000; Alfred gave in payment $100,000 cash, $200,000 market value of its unissued common stock, and a $300,000 mortgage.
6. On August 3, 2010, $700,000 of Alfred's convertible preferred stock was converted into $140,000 par value of its common stock. The preferred stock was originally issued at par.
7. The board of directors declared a $320,000 cash dividend on October 19, 2010, payable on November 16, 2010 to stockholders of record on November 5, 2010.
Required:
For each of the seven items, explain whether each is an inflow or outflow of cash and explain how it should be disclosed in Alfred's statement of cash flows (indirect method) for the fiscal year ended October 31, 2010. If any item is neither an inflow nor outflow of cash, explain why it is not and indicate the disclosure, if any, that should be made of the item in Alfred's statement of cash flows for the fiscal year ended October 31, 2010.