Statement of Cash Flows: Indirect Method The following balance sheets are taken from the records of Golding Inc.:Additional information is as follows: Equipment costing $10,000 was purchased at year-end. No equipment was sold. Net income for the year was $25,000, and $10,000 in dividends were paid.

Question

Statement of Cash Flows: Indirect Method
The following balance sheets are taken from the records of Golding Inc.:

	20X1	20X2
Assets
Cash	$130000	$150000
Accounts receivable	25,000	20000
Plant and equipment	50,000	60000
Accumulated depreciation	(20000)	(25000)
Land	10,000	10000
Total assets	$195000	$215000
Liabilities and equity:
Accounts payable	$ 10000	$5000
Bonds payable	8000	18000
Common stock	120000	120000
Retained earnings	57000	72000
Total liabilities and equity	$ 195000	$215000

Additional information is as follows: Equipment costing $10,000 was purchased at year-end. No equipment was sold. Net income for the year was $25,000, and $10,000 in dividends were paid.

Required:
Prepare a statement of cash flows using the indirect method.

Accepted Answer

1. Cash flow change: $150,000 – $130,000 = $20,000
2. Operating cash flows:
Net income $25,000
Add (deduct):
Decrease in accounts receivable 5,000
Depreciation expense 5,000
Decrease in accounts payable (5,000)
Net cash from operating activities $30,000
3. Cash from investing activities for purchase of equipment is $(10,000).
4. Cash from financing activities:
Payment of dividends $(10,000)
Issuance of bonds 10,000
Net cash from financing activities $ 0

5.

Golding Inc.
Statement of Cash Flows
For the Year Ended December 31, 20X2

Cash flows from operating activities:
Net income $ 25,000
Add (deduct) adjusting items:
Decrease in accounts receivable 5,000
Depreciation expense 5,000
Decrease in accounts payable (5,000)
Net cash from operating activities $ 30,000
Cash flows from investing activities:
Purchase of equipment (10,000)
Cash flows from financing activities:
Payment of dividends $(10,000)
Issuance of bonds 10,000
Net cash from financing activities 0
Net increase in cash $ 20,000

Question 14.RP.1: Statement of Cash Flows: Indirect Method The following balan...

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