Question

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Prepare a statement of cash flows for 2021 for Crystal Corporation. Long Term Investments wer sold at a gain of $10,000; cash dividends paid were $30,000; and net income was $170,000. 2021 2020 Cash $187.000 $78,000 Accounts Receivable 180,000 185,000 Long Term Investments 52,000 74,000 Building 313,000 255,000 (106,000) (89.000) Less: Accumulated depreciation-Building Total Assets 626,000 503,000 Accounts Payable 89.000 96,000 Salaries Payable 45,000 55,000 Common Stock 175,000 175.000 Retained Earnings 317.000 177.000 Total Liabilities and Stockholders' Equity 626,000 503,000

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation & deduct gain on sale of investments in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted. Before proceeding with the cash flow statement, we will check for certain adjustments given as below:

(1) Depreciation expense calculation:

Ending accumulated depreciation: $106000

Less: Beginning accumulated depreciation: ($89000)

Depreciation expense for current year: $17000

(2) Proceeds from sale of long term investments calculation:

Ending long term investments: : $74000

Less: Beginning long term investments: ($52000)

Cost of investments sold : $22000

Add: Gain on sale: $10000

Proceeds from sale: $32000

With the above adjustments, the required cash flow statement is given below:

Statement of cash flows for 2021:

Description	Amount	Amount
Operating activities:
Net income	$170000
Adjustments to reconcile net income to net cash from operating activities
Add: Depreciation expense	$17000
Less: Gain on sale of investments	($10000)
Add: Decrease in accounts receivable	$5000
Less: Increase in accounts payable	($7000)
Less: Decrease in salaries payable	($10000)
Cash flows from operating activities		$165000
Investing activities:
Proceeds from sale of long term investments	$32000
Less: Purchase of buildings	($58000)
Net cash used in investing activities		($26000)
Financing activities:
Dividends paid	($30000)
Net cash flows from financing activities		($30000)
Net increase in cash		$109000
Beginning cash balance		$78000
Ending cash balance		$187000