Prepare a statement of cash flows using the indirect method


Problem - The comparative balance sheets for Hinckley Corporation show the following information.

December 31 2010 2009

Cash $ 33,500 $ 13,000

Accounts receivable 12,250 10,000

Inventory 12,000 9,000

Investments - 0- 3,000

Building - 0- 29,750

Equipment 45,000 20,000

Patent 5,000 6,250

$ 107,750 $ 91,000

Allowance for doubtful accounts $ 3,000 $ 4,500

Accumulated depreciation on equipment 2,000 4,500

Accumulated depreciation on building - 0- 6,000

Accounts payable 5,000 3,000

Dividends payable - 0- 5,000

Notes payable, short- term (nontrade) 3,000 4,000

Long- term notes payable 31,000 25,000

Common stock 43,000 33,000

Retained earnings 20,750 6,000

$ 107,750 $ 91,000

Additional data related to 2010 are as follows.

1. Equipment that had cost $ 11,000 and was 40% depreciated at time of disposal was sold for $ 2,500.

2. $ 10,000 of the long- term note payable was paid by issuing common stock.

3. Cash dividends paid were $ 5,000.

4. On January 1, 2010, the building was completely destroyed by a flood. Insurance proceeds on the building were $ 30,000 (net of $ 2,000 taxes).

5. Investments (available- for- sale) were sold at $ 1,700 above their cost. The company has made similar sales and investments in the past.

6. Cash was paid for the acquisition of equipment.

7. A long- term note for $ 16,000 was issued for the acquisition of equipment.

8. Interest of $ 2,000 and income taxes of $ 6,500 were paid in cash.

Instructions - Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.

Solution Preview :

Prepared by a verified Expert
Accounting Basics: Prepare a statement of cash flows using the indirect method
Reference No:- TGS02577247

Now Priced at $25 (50% Discount)

Recommended (95%)

Rated (4.7/5)