Chapter 12, Problem 12.3CP

Preparing a Statement of Cash Flows (Indirect Method)

Hunter Company is developing its annual financial statements at December 31, 2015. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized:

	2015	2014
Balance Sheet at December 31
Cash	$ 44,000	$ 18,000
Accounts Receivable	27,000	29,000
Inventory	30,000	36,000
Equipment	111,000	102,000
Accumulated Depreciation—Equipment	(36,000)	(30,000)
	$176,000	$155,000
Accounts Payable	$ 25,000	$ 22,000
Salaries and Wages Payable	800	1,000
Note Payable (long-term)	38,000	48,000
Common Stock	80,000	60,000
Retained Earnings	32,200	24,000
	$176,000	$155,000
Income Statement for 2015
Sales Revenue	$100,000
Cost of Goods Sold	61,000
Other Expenses	27,000
Net Income	$ 12,000

Additional Data:

1. a. Bought equipment for cash, $9,000.
2. b. Paid $10,000 on the long-term note payable.
3. c. Issued new shares of stock for $20,000 cash.
4. d. Declared and paid a $3,800 cash dividend.
5. e. Other expenses included depreciation, $6,000; salaries and wages, $10,000; taxes, $3,000; utilities, $8,000.
6. f. Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash.

Required:

1. 1. Prepare the statement of cash flows for the year ended December 31, 2015, using the indirect method.
2. 2. Use the statement of cash flows to evaluate Hunter’s cash flows.

   TIP: Demonstration Case A provides a good example of information to consider when evaluating cash flows.