Statement of Cash Flows (Indirect Method) The Forrester Company’s income statement and comparative balance sheets as of December 31 of 2019 and 2018 are shown below: FORRESTER COMPANY Income Statement For the Year Ended December 31, 2019 Sales Revenue $660,000 Cost of Goods Sold $376,000 Wages Expense 107,000 Depreciation Expense 22,000 Rent Expense 28,000 Income Tax Expense 24,000 557,000 Net Income $103,000 FORRESTER COMPANY Balance Sheets Dec. 31, 2019 Dec. 31, 2018 Assets Cash $58,000 $30,000 Accounts Receivable 52,000 60,000 Inventory 142,000 120,000 Prepaid Rent 16,000 10,000 Plant Assets 420,000 301,000 Accumulated Depreciation (127,000) (105,000) Total Assets $561,000 $416,000 Liabilities and Stockholders’ Equity Accounts Payable $29,000 $17,000 Wages Payable 14,000 9,000 Income Tax Payable 7,000 8,000 Common Stock 295,000 252,000 Paid-in-Capital in Excess of Par Value 72,000 58,000 Retained Earnings 144,000 72,000 Total Liabilities and Stockholders’ Equity $561,000 $416,000 Cash dividends of $31,000 were declared and paid during 2019. Plant assets were purchased for cash and additional common stock was issued for cash. Accounts payable relate to merchandise purchases. Required a. Calculate the change in cash that occurred during 2019. b. Prepare a statement of cash flows using the indirect method. c. Compute free cash flow. d. Compute the operating‑cash‑flow‑to‑current‑liabilities ratio. e. Compute the operating‑cash‑flows‑to‑capital‑expenditures ratio. a. Change in Cash during 2019 $Answer Answer b. Use a negative sign with cash outflow answers. FORRESTER COMPANY Statement of Cash Flows For Year Ended December 31, 2019 Cash Flow from Operating Activities Net Income Add (deduct) items to convert net income to cash basis Depreciation Accounts Receivable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Statement of Cash Flows (Indirect Method)

The Forrester Company’s income statement and comparative balance sheets as of December 31 of 2019 and 2018 are shown below:

FORRESTER COMPANY Income Statement For the Year Ended December 31, 2019
Sales Revenue		$660,000
Cost of Goods Sold	$376,000
Wages Expense	107,000
Depreciation Expense	22,000
Rent Expense	28,000
Income Tax Expense	24,000	557,000
Net Income		$103,000

FORRESTER COMPANY Balance Sheets
	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash	$58,000	$30,000
Accounts Receivable	52,000	60,000
Inventory	142,000	120,000
Prepaid Rent	16,000	10,000
Plant Assets	420,000	301,000
Accumulated Depreciation	(127,000)	(105,000)
Total Assets	$561,000	$416,000
Liabilities and Stockholders’ Equity
Accounts Payable	$29,000	$17,000
Wages Payable	14,000	9,000
Income Tax Payable	7,000	8,000
Common Stock	295,000	252,000
Paid-in-Capital in Excess of Par Value	72,000	58,000
Retained Earnings	144,000	72,000
Total Liabilities and Stockholders’ Equity	$561,000	$416,000

Cash dividends of $31,000 were declared and paid during 2019. Plant assets were purchased for cash and additional common stock was issued for cash. Accounts payable relate to merchandise purchases.

Required
a. Calculate the change in cash that occurred during 2019.
b. Prepare a statement of cash flows using the indirect method.
c. Compute free cash flow.
d. Compute the operating‑cash‑flow‑to‑current‑liabilities ratio.
e. Compute the operating‑cash‑flows‑to‑capital‑expenditures ratio.

a. Change in Cash during 2019 $Answer

Answer

b. Use a negative sign with cash outflow answers.

FORRESTER COMPANY Statement of Cash Flows For Year Ended December 31, 2019
Cash Flow from Operating Activities
Net Income
Add (deduct) items to convert net income to cash basis
Depreciation
Accounts Receivable

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