Maurice Tutor
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The comparative balance sheet of Dowling Company for December 31, 2008 and 2007, is as follows:
|
Assets |
2008 |
2007 |
|
Cash |
$140,350 |
$95,900 |
|
Accounts receivable (net) |
95,300 |
102,300 |
|
Inventories |
165,200 |
157,900 |
|
Prepaid expenses |
6,240 |
5,860 |
|
Investments (long-term) |
35,700 |
84,700 |
|
Land |
75,000 |
90,000 |
|
Buildings |
375,000 |
260,000 |
|
Accumulated depreciation—buildings |
71,300 |
58,300 |
|
Machinery and equipment |
428,300 |
428,300 |
|
Accumulated depreciation—machinery and equipment |
148,500 |
138,000 |
|
Patents |
58,000 |
65,000 |
|
Total assets |
$1,159,290 |
$1,093,660 |
|
Liabilities and Stockholders’ Equity |
 |
 |
|
Accounts payable (merchandise creditors) |
$43,500 |
$46,700 |
|
Accrued expenses (operating expenses) |
14,000 |
12,500 |
|
Income taxes payable |
7,900 |
8,400 |
|
Dividends payable |
14,000 |
10,000 |
|
Mortgage note payable, due 2019 |
40,000 |
0 |
|
Bonds payable |
150,000 |
250,000 |
|
Common stock, $30 par |
450,000 |
375,000 |
|
Excess of issue price over par—common stock |
66,250 |
41,250 |
|
Retained earnings |
373,640 |
349,810 |
|
Total liabilities and stockholders’ equity |
$1,159,290 |
$1,093,660 |
The income statement for Dowling Company is shown here:
|
Sales |
 |
1,100,000 |
|
Cost of merchandise sold |
 |
710,000 |
|
Gross profit |
 |
390,000 |
|
Operating expenses: |
 |  |
|
Depreciation expense |
23,500 |
 |
|
Patent amortization |
7,000 |
 |
|
Other operating expenses |
196,000 |
 |
|
Total operating expenses |
 |
226,500 |
|
Income from operations |
 |
163,500 |
|
Other income: |
 |  |
|
Gain on sale of investments |
$11,000 |
 |
|
Other expense: |
 |  |
|
Interest expense |
$26,000 |
$15,000 |
|
Income before income tax |
 |
148,500 |
|
Income tax expense |
 |
50,000 |
|
Net income |
 |
98,500 |
An examination of the accounting records revealed the following additional information applicable to 2008:
a. Land costing $15,000 was sold for $15,000.
b. A mortgage note was issued for $40,000.
c. A building costing $115,000 was constructed.
d. 2,500 shares of common stock were issued at 40 in exchange for the bonds payable.
e. Cash dividends declared were $74,670.
Instructions
1. Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities.
2. Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities.