Statement of cash flows—direct  method

 

The comparative balance sheet of Martinez Inc. for December 31, 2016 and 2015, is as follows:

 

Dec. 31, 2016                   Dec. 31, 2015

 

 

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         $    661,920                           $    683,100

Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                         992,640                                  914,400

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               1,394,400                              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 (merchandise creditors) . . . . . . . . . . . . . . . . . .                 $1,080,000                           $   966,600 Accrued expenses payable (operating expenses)  . . . . . . . . . . .  .                                                                                       67,800                                       79,200 Dividends payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                           100,800                                     91,200

Common stock, $5 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, 2016, is as follows:

 

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

 

Additional data obtained from an examination of the accounts in the ledger for 2016 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.