Chapter 11, Problem 45E

Partial Statement of Cash Flows

Service Company had net income during the current year of $65,800. The following information was obtained from Service’s balance sheet:

Accounts receivable $26,540 increase

Inventory 32,180 increase

Accounts payable 9,300 decrease

Interest payable 2,120 increase

Accumulated depreciation (Building) 14,590 increase

Accumulated depreciation (Equipment) 32,350 increase

Additional Information:

1. Equipment with accumulated depreciation of $18,000 was sold during the year.

2. Cash dividends of $29,625 were paid during the year.

Required:

1. Prepare the net cash flows from operating activities using the indirect method.

2. CONCEPTUAL CONNECTION How would the cash proceeds from the sale of equipment he reported on the statement of cash flows?

3. CONCEPTUAL CONNECTION How would the cash dividends be reported on the statement of cash flows?

4. CONCEPTUAL CONNECTION What could the difference between net income and cash flow from operating activities signal to financial statement users?