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Ramirez Company: Prepare a Statement of Cash Flows, Indirect method for 2007

The comparative balance sheets for Ramirez Company as of December 31 are
presented below.

RAMIREZ COMPANY
Comparative Balance Sheets
December 31

Assets 2007 2006
Cash $ 71,000 $ 45,000
Accounts receivable 44,000 62,000
Inventory 151,450 142,000
Prepaid expenses 15,280 21,000
Land 105,000 130,000
Equipment 228,000 155,000
Accumulated depreciation-equipment (45,000) (35,000)
Building 200,000 200,000
Accumulated depreciation-building (60,000) (40,000)
Total $ 709,730 $680,000

Liabilities and Stockholders' Equity
Accounts payable $ 47,730 $ 40,000
Bonds payable 260,000 300,000
Common stock, $1 par 200,000 160,000
Retained earnings 202,000 180,000
Total $ 709,730 $680,000

Additional information:
1. Operating expenses include depreciation expense of $42,000 and charges from prepaid
expenses of $5,720.
2. Land was sold for cash at book value.
3. Cash dividends of $15,000 were paid.
4. Net income for 2007 was $37,000.
5. Equipment was purchased for $95,000 cash. In addition, equipment costing $22,000
with a book value of $10,000 was sold for $6,000 cash.
6. Bonds were converted at face value by issuing 40,000 shares of $1 par value common
stock.

Instructions
Prepare a statement of cash flows for the year ended December 31, 2007, using the indirect method.

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Solution Summary

The solution presents the Statement of Cash Flows for Ramirez Company together with explanations and notes for better understanding.

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