The financial statements of Wetaskiwin Limited are presented here:
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 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) Wetaskiwin’s cash position declined by $1,000 between 2011 and 2012. Identify the reason(s) for this decrease.
SOLUTION
(a) (1) WETASKIWIN LIMITED
Statement of Cash Flows—Indirect Method
Year Ended December 31, 2012
Operating activities
Profit $36,000
Adjustments to reconcile profit to net cash
provided (used) by operating activities
Depreciation expense (given) $11,000
Unrealized loss on trading investments 9,000
Loss on sale of equipment 2,000
Increase in accounts receivable (14,000 )
Increase in merchandise inventory (4,000 )
Decrease in accounts payable (26,000 )