Financial statements for Nackawic Inc. follow:
NACKAWIC INC.
Statement of Financial Position
December 31
NACKAWIC INC.
Income Statement
Year Ended December 31, 2015
Additional information:
1. Recorded an unrealized loss of $9,000 on trading investments.
2. Equipment was sold during the year for $8,000 cash. This equipment originally cost $15,000 and had a carrying amount of $10,000 at the time of sale.
3. Equipment costing $10,000 was purchased in exchange for $5,000 cash and a bank loan for the balance.
4. Accounts payable relate to merchandise creditors.
5. Operating expenses are composed of $11,000 of depreciation expense, $12,000 of administrative expenses, $49,000 of salaries expense, and a $2,000 loss on the disposal 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) Wetaskiwin’s cash position declined by $1,000 between 2014 and 2015. Identify the reason(s) for this decrease?
SOLUTION
(a) (1)
NACKAWIC INC.
Statement of Cash Flows—Indirect Method
Year Ended December 31, 2015
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 disposal 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
Disposal 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
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