Question

Audio City, Inc., is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:

	Current Year				Previous Year
Balance Sheet at December 31
Cash	$	40,000			$	47,400
Accounts Receivable		11,800				16,000
Inventory		17,200				16,000
Equipment		207,000				142,000
Accumulated Depreciation—Equipment		(48,000	)			(37,000	)
Total Assets	$	228,000			$	184,400
Accounts Payable	$	7,200			$	17,400
Salaries and Wages Payable		2,000				1,000
Note Payable (long-term)		56,000				67,000
Common Stock		84,000				62,000
Retained Earnings		78,800				37,000
Total Liabilities and Stockholders’ Equity	$	228,000			$	184,400
Income Statement
Sales Revenue	$	176,000
Cost of Goods Sold		82,000
Other Expenses		48,000
Net Income	$	46,000

Additional Data:

1. Bought equipment for cash, $65,000.
2. Paid $11,000 on the long-term note payable.
3. Issued new shares of stock for $22,000 cash.
4. Dividends of $4,200 were paid in cash.
5. Other expenses included depreciation, $11,000; salaries and wages, $16,000; taxes, $21,000.
6. Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.

Required:
1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

AUDIO CITY INC. Statement of Cash Flows For the Year Ended December 31 Cash Flows from Operating Activities: Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation Expense $ 46,000 Increase in Accounts Receivable Increase in Inventory Increase in Accounts Payable Decrease in Salaries and Wages Payable 46,000 Net Cash Provided by Operating Activities Cash Flows from Investing Activities: Cash Payments to Purchase Equipment Net Cash Used in Investing Activities Cash Flows from Financing Activities: Cash Payments on Note Payable (long-term) Cash Receipts from Issuing Stock Net Cash Provided by Financing Activities Net Increase in Cash during the Year Cash Balance, January 1 Cash Balance, December 31

Answer 1

46,000 AUDIO CITY INC. Statement of Cash flows For the Year Ended December 31 Cash flows from Operating Activities: Net Income $ Adjustments to reconcile Net Income to Net Cash Provided by Operating activities Depreciation expenses $ 11,000 Decrease in accounts Receivables $ 4,200 Increase in Inventory $ (1.200) Decrease in Accounts Payable S (10,200) Increse in Salaries and Wages Payable $ 1.000 $ Net Cash provided by operating activities $ 4.800 50.800 Cash Flows from Investing Activities Cash payments to purchase equipment Net Cash used by Investing activities $ (65,000 $ (65,000) S $ S (11,000) 22,000 (4.200) Cash Flows from Financing Activities Cash payment on Note Payable Cash receipts from issuing Stock Cash payments for dividends Net Cash provided by Financing activities Net Increase in Cash during the year Cash, balance, january 1 Cash balance, December 31 $ S $ $ 6,800 (7,400) 47,400 40,000