Statement of Cash Flows: Indirect Method

 

p10. William Corporation’s income statement for the year ended December 31, 2014, and its comparative balance sheets as of December 31, 2014 and 2013, follow.

 

 

 

 

 

 

 

William Corporation Income Statement

 

                                     For the Year ended December 31, 2014                                      

 

 

 

Sales	Â	Â	$1,609,000
Cost of goods sold	Â	Â	1,127,800
Gross margin	Â	Â	$   481,200
Operating expenses (including depreciation expense of $46,800)	Â	Â	  449,400
Income from operations	Â	Â	$     31,800
Other income (expenses)	Â	Â	Â
Gain on sale of furniture and fixtures	$  7,000	Â	Â
Interest expense	(23,200)	Â	(16,200)
Income before income taxes	Â	Â	$     15,600
Income taxes expense	Â	Â	4,600
Net income	Â	Â	$     11,000

 

William Corporation Comparative Balance Sheets

 

                                                  December 31, 2014 and 2013                                                   

 

2014                          2013

 

Assets

 

Cash                                                                                            $164,800                   $  50,000

 

Accounts receivable (net)                                                            165,200                     200,000

 

Merchandise inventory                                                               350,000                     450,000

 

Prepaid rent                                                                                      2,000                         3,000

 

Furniture and fixtures                                                                 148,000                     144,000

 

Accumulated depreciation—furniture and fixtures                  (42,000)                                                                                                                       (24,000) Total assets                                                                                                     $788,000                                                                                                     $823,000

 

                                                   

 

Liabilities and Stockholders’ equity

 

 

 

Accounts payable	$143,400	Â	$200,400
Income taxes payable	1,400	Â	4,400
Notes payable (long-term)	40,000	Â	20,000
Bonds payable	100,000	Â	200,000
Common stock, $20 par value	240,000	Â	200,000
Additional paid-in capital	181,440	Â	121,440
Retained earnings	81,760	Â	76,760
Total liabilities and stockholders’ equity	$788,000	Â	$823,000

 

During 2014, William engaged in these transactions:

 

a.     Sold at a gain of $7,000 furniture and fixtures that cost $35,600, on which it had accumulated depreciation of $28,800.

 

b.     Purchased furniture and fixtures in the amount of $39,600.

 

c.      Paid a $20,000 note payable and borrowed $40,000 on a new note.

 

d.     Converted bonds payable in the amount of $100,000 into 4,000 shares of common stock.

 

e.      Declared and paid $6,000 in cash dividends.

 

reQUIreD

 

1.    Using the indirect method, prepare a statement of cash flows for William. Include a supporting schedule of noncash investing transactions and financing transactions.

 

2.    aCCounting ConneCtion ▶ What are the primary reasons for William’s large increase in cash from 2013 to 2014, despite its low net income?

 

3.    Business appliCation ▶ Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) Compare and contrast what these two per- formance measures tell you about William’s cash-generating ability.

 

 

 

 

 

 

 

 

 

it.