Chapter 16, Problem 16.4BPR

Statement of cash flows—direct method

The comparative balance sheet of Martinez Inc. for December 31, 20Y4 and 20Y3, is as follows:

	Dec 31, 20Y4	Dec. 31,20Y3
Assets
Cash..................................	$ 661,920	$ 683,100
Accounts receivable (net)..................................	992,640 0	914,400
Inventories...............................................	1,394,40	1,363,800
Investments..............................................	0	432,000
Land.....................................................	960,000	0
Equipment................................................	1,224,000	984,000
Accumulated depreciation—equipment....................	(481,500)	(368,400)
Total assets............................................	$4,751,460	$4,008,900
Liabilities and Stockholders' Equity
Accounts payable.........................................	$1,080,000	$ 966,600
Accrued expenses payable................................	67,800	79,200
Dividends payable..................................	100,800	91,200
Common stock. $S par ....................................	130,000	30,000
Paid in capital: Excess of issue price over par—common stock......	950,000	450,000
Retained earnings.........................................	2,422,860	2,391,900
Total liabilities and stockholders' equity..................	$4,751,460	$4,008,900

The income statement for the year ended December 31, 20Y4, is as follows:

Sales..........................................		$4,512,000
Cost of merchandise sold.......................		2,352,000
Gross profit....................................		$2,160,000
Operating expenses:
Depreciation expense.......................	$ 113,100
Other operating expenses...................	1,344,840
Total operating expenses.................		1,457,940
Operating income..............................		$ 702,060
Other income:
Gain on sale of investments..................		156,000
Income before income tax......................		$ 858,060
Income tax expense............................		299,100
Net income....................................		$ 558,960

Additional data obtained from an examination of the accounts in the ledger for 20Y4 are as follows:

a. Equipment and land were acquired for cash.

b. There were no disposals of equipment during the year.

c. The investments were sold for $588,000 cash.

d. The common stock was issued for cash.

e. There was a $528,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.