Presented below is the comparative balance sheet for Diatessaron Inc., a private company reporting under ASPE, at December 31, 2014 and 2013

Presented below is the comparative balance sheet for Diatessaron Inc., a private company reporting under ASPE, at December 31, 2014 and 2013:

Additional information:

1. Cash dividends of $15,000 were declared.

2. A long-term debt investment was acquired for cash at a cost of $102,000.

3. Depreciation expense is included in the operating expenses.

4. The company issued 10,500 common shares for cash on March 2, 2014. The fair value of the shares was $10 per share. The proceeds were used to purchase additional equipment.

5. Equipment that originally cost $30,000 was sold during the year for cash. The equipment had a carrying value of $9,000 at the time of sale.

6. The company issued a note payable for $28,000 and repaid $3,000 by year end.

Instructions

Prepare a cash flow statement for the year using the indirect method.

TAKING IT FURTHER Is it necessary to show both the proceeds from issuing a new note payable and the partial repayment of notes payable? Or is it sufficient to simply show the net increase or decrease in notes payable, as is done with accounts payable? Explain.

SOLUTION

DIATESSARON INC.

Cash Flow Statement – Indirect Method

Year Ended December 31, 2014

Operating activities

Profit $68,000

Adjustments to reconcile profit

to net cash provided by operating activities:

Depreciation expense $43,500 (1)

Loss on sale of equipment 3,000

Amortization of premium on

long-term debt investment 500 (2)

Increase in accounts receivable (26,000)

Increase in inventory (49,500)

Increase in accounts payable 10,500

Decrease in income tax payable (1,000) (19,000)

Net cash provided by operating activities 49,000