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Statement of Cash Flows using the indirect method

AAA Company's comparative balance sheet and income statement for last year appear below:

Balance Sheets

Ending Balance Beginning Balance

Cash $ 60,000 $ 25,000
Accounts Receivable 48,000 61,000
Inventory 56,000 48,000
Prepaid Expenses 13,000 19,000
Long-Term Investments 300,000 210,000
Plant and Equipment 470,000 470,000
Accumulated Depreciation (222,000) (188,000)

Total Assets $725,000 $645,000

Accounts Payable $ 59,000 $ 36,000
Accrued Liabilities 42,000 24,000
Taxes Payable 7,000 14,000
Bonds Payable 80,000 140,000
Deferred Taxes 38,000 23,000
Common Stock 110,000 70,000
Retained Earnings 389,000 338,000

Total Liabilities and Owners' Equity $725,000 $645,000

Income Statement

Sales $540,000

Less Cost of Goods Sold 300,000

Gross Margin 240,000

Less operating expenses 150,000

Net operating income 90,000

Less income taxes 27,000
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Net income $63,000

The company declared and paid $12,000 in cash dividends during the year.

Required: Prepare a Statement of Cash Flows using the indirect method

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The solution explains how to prepare the statement of Cash Flows using the indirect method

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