Question

Comparative balance sheet accounts of Martinez Company are presented below. MARTINEZ COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2020 2019 Cash $69,900 $51,400 Accounts Receivable 155,500 129,400 Inventory 75,200 60,400 Debt investments (available-for-sale) 55,500 84,500 Equipment 70,600 48,200 Buildings 144,500 144,500 Land 40,200 25,000 Totals $611,400 $543,400 $7,900 13,900 $9,900 20,800 36,700 65,800 28,200 59,700 Credit Balances Allowance for Doubtful Accounts Accumulated Depreciation-Equipment Accumulated Depreciation-Buildings Accounts Payable Income Taxes Payable Long-Term Notes Payable Common Stock Retained Earnings Totals 12,100 10,000 62,000 70,000 310,000 260,000 94,100 93,700 $611,400 $543,400

Additional data:

1.		Equipment that cost $9,900 and was 60% depreciated was sold in 2020.
2.		Cash dividends were declared and paid during the year.
3.		Common stock was issued in exchange for land.
4.		Investments that cost $34,600 were sold during the year.
5.		There were no write-offs of uncollectible accounts during the year.

Martinez’s 2020 income statement is as follows.

Sales revenue					$955,200
Less: Cost of goods sold					601,100
Gross profit					354,100
Less: Operating expenses (includes depreciation expense and bad debt expense)					250,300
Income from operations					103,800
Other revenues and expenses
Gain on sale of investments		$15,100
Loss on sale of equipment		(3,000	)		12,100
Income before taxes					115,900
Income taxes					45,400
Net income					$70,500

(a) Compute net cash provided by operating activities under the direct method. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net cash flow from operating activities ?

(b) Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

a) Net Cash provided by Operating Activities $49,040 MARTINEZ COMPANY Statement of Cash Flows (Operating Cash Flow Direct method) For the Year Ended December 31, 2020 Cash flows from Operating Activities Cash Inflows From Customers $929,100 Cash Outflows To Suppliers of goods ($609,800) For Operating expenses ($226,960) For Income tax ($43,300) Total Cash outflows ($880,060) Net Cash provided by Operating Activities $49,040 Working notes: i) Amount of cash received from Customers Sales Less: Increase in Accounts receivable Net cash received from customers $955,200 -$26,100 $929,100 ii) Cost of inventory purchased Cost of Goods sold Add : Increase in inventory Merchandise purchase $601,100 $14,800 $615,900 Amount of cash paid to suppliers of merchandise cost of purchase Less: Increase in Accounts payable Cash paid to Suppliers $615,900 -$6,100 $609,800 iii) Amount of cash paid for Operating expenses Operating expenses Less: Depreciation Less: Increase in Provison for doubtful debts Cash paid for operating expenses $250,300 -$21,340 -$2,000 $226,960 iv) Income tax expense Less: Increase in income tax payable Income tax paid $45,400 -$2,100 $43,300 b) Working notes: $70,500 Equipment MARTINEZ COMPANY Statement of Cash Flows For the Year Ended December 31, 2020 Cash flows from Operating Activities Net Income Adjustments to reconcile net income to net cash provided by Operating Activities Depreciation $21,340 Loss on sale of equipment $3,000 Gain on sale of investments ($15,100) Increase in Accounts Receivable (net) ($24,100) Increase in Inventory ($14,800) Increase in Accounts payable $6,100 Increase in Income tax payable $2,100 Opening balance Bank $48,200 Accumulated Dep $32,300 Bank P and L Account Closing balance $80,500 $5,940 $960 $3,000 $70,600 $80,500 ($21,460) $49,040 Accumulated Depreciation- Equipment Equipment $5,940 Opening balance (on equipment sold) P and L Account Closing balance $20,800 $26,740 $13,900 $12,840 $26,740 $49,700 $960 ($5,600) ($32,300) $12,760 Net Cash provided by Operating Activities Cash flows from Investing Activities Sale proceeds of Investment Sale of Equipment Purchase of Investments Purchase of Equipment Net Cash used by Investing Activities Cash flows from Financing Activities Repayment of Long term Notes payable Issue of common shares Dividend Paid Net Cash used by Financing Activities Net increase (decrease ) in cash Cash balance at end of the year Cash balance at beginning of the year Accumulated Depreciation- Buildings Opening balance Closing balance $36,700 P and L Account $36,700 $28,200 $8,500 $36,700 ($8,000) $34,800 ($70,100) $49,700 ($43,300) $18,500 $51,400 $69,900 Debt investment Opening balance $84,500 Bank Bank $5,600 Profit and loss account $15,100 Closing balance $105,200 $55,500 $105,200 Non-cash Investing and Financing Activity Purchase of land by issue of common stock $15,200 Cash dividend Closing balance Retained earnings $70,100 Opening balance $94,100 Net profit $164,200 $93,700 $70,500 $164,200 Common stock Opening balance $260,000 Land $15,200 $310,000 Bank $310,000 $310,000 Closing balance $34,800