Question

The income statement, balance sheets, and additional information for Video Phones, Inc., are provided.   

VIDEO PHONES, INC. Income Statement For the Year Ended December 31, 2018
Net sales		$	3,636,000
Expenses:
Cost of goods sold	$ 2,450,000
Operating expenses	958,000
Depreciation expense	37,000
Loss on sale of land	9,000
Interest expense	20,000
Income tax expense	58,000
Total expenses			3,532,000
Net income		$	104,000

  

VIDEO PHONES, INC. Balance Sheet December 31
	2018		2017
Assets
Current assets:
Cash	$	254,600	$	227,800
Accounts receivable		92,000		70,000
Inventory		105,000		145,000
Prepaid rent		14,400		7,200
Long-term assets:
Investments		115,000		0
Land		220,000		260,000
Equipment		290,000		220,000
Accumulated depreciation		(81,000)		(44,000)
Total assets	$	1,010,000	$	886,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	75,000	$	91,000
Interest payable		7,000		12,000
Income tax payable		16,000		15,000
Long-term liabilities:
Notes payable		305,000		235,000
Stockholders' equity:
Common stock		400,000		400,000
Retained earnings		207,000		133,000
Total liabilities and stockholders’ equity	$	1,010,000	$	886,000

  

Additional Information for 2018:

1. Purchase investment in bonds for $115,000.
2. Sell land costing $40,000 for only $31,000, resulting in a $9,000 loss on sale of land.
3. Purchase $70,000 in equipment by issuing a $70,000 long-term note payable to the seller. No cash is exchanged in the transaction.
4. Declare and pay a cash dividend of $30,000.

  
Required:

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$     1,04,000.00
Adjustments
Depreciation	$    37,000.00
Loss on sale of land	$      9,000.00
Change In current assets & Liabilities
Increase in Accounts Receivable	$ -22,000.00			=70000-92000
Decrease in inventories	$    40,000.00			=145000-105000
Increase in Prepaid Rent	$     -7,200.00			=7200-14400
Decrease in Accounts payable	$ -16,000.00			=75000-91000
Decrease in Interest payable	$     -5,000.00			=7000-12000
Increase in Income tax payable	$      1,000.00			=16000-15000
Total Adjustments		$        36,800.00
Cash from operating activities			$    1,40,800.00
Cash flow from Investing Activities
Purchase of Investments		$   -1,15,000.00
Sale of land		$        31,000.00
Cash used in investing activities			$      -84,000.00
Cash flow from Financing Activities
Dividend Paid		$      -30,000.00
Cash used in financing activities			$      -30,000.00
Net Increase in cash			$        26,800.00
Opening Balance of Cash			$     2,27,800.00
Closing Balance of Cash			$     2,54,600.00
			$                      -
Non Cash Investing & Financing Activities
Purchase of Equipment by issuing notes payable		$        70,000.00