Financial statements for Nackawic Inc. follow:
Additional information:
1. Long-term investments were sold for $5,000, resulting in a realized loss of $7,500.
2. New equipment costing $141,000 was purchased for $71,000 cash and a $70,000 bank loan payable.
3. Equipment costing $56,000 was sold for $15,550, resulting in a gain of $8,750.
4. Accounts payable relate to merchandise creditors; accrued liabilities relate to operating expenses.
5. A dividend was paid during the year.
6. Operating expenses include $58,700 of depreciation expense and an $8,750 gain on sale of equipment.
Instructions
(a) Prepare the statement of cash flows, using either (1) the indirect method or (2) the direct method, as assigned by your instructor.
(b) Nackawic’s cash position increased by 75 percent between 2011 and 2012. Identify the primary reason(s) for this significant increase.
SOLUTION
(a) (1)
NACKAWIC INC.
Statement of Cash Flows—Indirect Method
Year Ended December 31, 2012
Operating activities
Profit $87,810
Adjustments to reconcile profit to net cash
provided (used) by operating activities
Depreciation expense $58,700
Loss on sale of long-term investments 7,500
Gain on sale of equipment (8,750)
Increase in accounts receivable (43,800 )
Increase in inventories (29,250 )
Increase in accounts payable 14,420
Decrease in accrued liabilities (6,730) (7,910)
Net cash provided by operating activities 79,900
Investing activities
Sale of long-term investments $ 5,000
Sale of property, plant, and equipment 15,550
Purchase of property, plant, and equipment (71,000 )
Net cash used by investing activities (50,450 )
Financing activities
Issue of common shares ($240,000 – $200,000) $40,000
Payment of cash dividends
($121,790 + $87,810 – $175,600) (34,000 )
Net cash provided by financing activities 6,000
Net increase in cash 35,450
Cash, January 1 47,250
Cash, December 31 $82,700
Note X to the Statement of Cash Flows: Equipment costing $141,000 was purchased by paying $71,000 cash and issuing a bank loan payable for $70,000.
(a) (2)
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