Explore BrainMass

Statement of Cash Flows - direct and indirect method

E10-5 Preparation of Statement of Cash Flows

The accountant for Consolidated Enterprises Inc. has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X3. The accountant has asked for assistance in preparing a statement of cash flows for the consolidated entity. Consolidated Enterprises holds 80 percent of the stock of Separate Way Manufacturing. The following items are proposed
for inclusion in the consolidated cash flow statement:

Decrease in accounts receivable $ 23,000
Increase in accounts payable 5,000
Increase in inventory 15,000
Increase in bonds payable 120,000
Equipment purchased 380,000
Common stock repurchased 35,000
Depreciation reported for current period 73,000
Gain recorded on sale of equipment 8,000
Book value of equipment sold 37,000
Goodwill impairment loss 3,000
Sales 900,000
Cost of goods sold 368,000
Dividends paid by parent 60,000
Dividends paid by subsidiary 30,000
Consolidated net income for the year 450,000
Income assigned to the noncontrolling interest 14,000


Prepare in good form a statement of cash flows for Consolidated Enterprises Inc. using the indirect method of computing income from operations.

E10-6 Direct Method Cash Flow Statement
Using the data presented in E10-5, prepare a statement of cash flows for Consolidated Enterprises Inc.using the direct method of computing cash flows from operating activities.

Solution Preview

Consolidated Enterprises Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the Year Ended December 31, 20X3

Cash Flows from Operating Activities:
Consolidated Net Income $ 450,000
Noncash Expenses, Revenue, and Gains
Included in Income:
Depreciation Expense 73,000
Goodwill Impairment Loss 3,000
Income Assigned to Noncontrolling Interest 14,000
Gain on Sale of Equipment (8,000)
Decrease in Accounts Receivable 23,000
Increase in Accounts Payable 5,000
Increase in Inventory (15,000)
Net Cash ...

Solution Summary

The solution explains how to prepare a consolidated statement of cash flows under direct method and indirect method