Problem: The comparative balance sheet of Westmont Industries at December 31, 2007, reported the following:
12/31/07 12/31/06
Current assets:
Cash $10,600 $15,500
Accounts Receivable 28,600 29,300
Inventories 51,600 53,000
Prepaid expenses 4,200 3,700
Current liabilities:
Notes payable (for inventory) 9,200 -0-
Accounts payable 21,900 28,000
Accrued liabilities 11,000 16,800
Westmont Industries’ transactions during 2007 included the following:
Amortization expense $ 5,000
Payment of cash dividends 17,000
Cash acquisition of plant assets 55,000
Issuance of long-term note 32,000
Retirement of bonds payable by
Issuing common stock 55,000
Cash acquisition of building 124,000
Net income 28,600
Issuance of common stock for cash 105,600
Stock dividend 13,000
Sale of long-term investments 6,000
Depreciation expense 15,000
Directions:
1. Prepare the statement of cash flows of Westmont Industries for the year ended 31, 2007, using the indirect method, and include a schedule of noncash investing and financing activities if necessary.
2. Evaluate Westmont Industries’ cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.
Explain your answer in paragraph form and using proper grammatical English.