Question

The management team of Wickersham Brothers Inc. is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized.


Current Year Prior Year
Balance Sheet
Assets
Cash $ 50,000 $ 72,000
Accounts Receivable 80,000 70,000
Merchandise Inventory 60,000 65,000
Property And Equipment 110,000 60,000
Less: Accumulated Depreciation (30,000) (15,000)
Total Assets $270,000 $252,000
Liabilities:
Accounts Payable $ 10,000 $ 12,000
Salaries and Wages Payable 2,000 1,000
Notes Payable, Long-Term 50,000 60,000
Stockholders Equity:
Common Stock 100,000 80,000
Retained Earnings 108,000 99,000
Total Liabilities and Stockholders Equity $270,000 $252,000
Income Statement
Sales $200,000
Cost of Goods Sold 110,000
Depreciation Expense 15,000
Other Expenses 50,000
Net Income $ 25,000

Other information from the companys records includes the following:

Bought equipment for cash, $50,000.

Paid $10,000 on long-term note payable.

Issued new shares of common stock for $20,000 cash.

Cash dividends of $16,000 were declared and paid to stockholders.

Accounts Payable arose from inventory purchases on credit.

Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses.

Required:

Part a. Prepare the statement of cash flows using the indirect method. Include any supplemental disclosures.

Part b. Interpret the statement of cash flows by explaining the main sources and uses of cash during the year.

Answer

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