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Statement of Cash Flows using the indirect method

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A comparative balance sheet for Tiger Company appears below:

TIGER COMPANY
Comparative Balance Sheet
12/31/2008 12/31/2007
Assets
Cash $23,000 $10,000
Accounts receivable 18,000 14,000
Inventory 27,000 18,000
Prepaid expenses 6,000 9,000
Long-term investments -0- 18,000
Equipment 60,000 32,000
Accumulated depreciation - equipment (18,000) (14,000)
Total assets $116,000 $87,000
Liabilities and Stockholders' Equity
Accounts payable $17,000 $7,000
Bonds payable 37,000 47,000
Common stock 40,000 23,000
Retained earnings 22,000 10,000
Total liabilities and stockholders' equity $116,000 $87,000

Additional information:

1. Net income for the year ending December 31, 2008 was $24,000.
2. Cash dividends of $12,000 were declared and paid during the year.
3. Long-term investments that had a cost of $18,000 were sold for $16,000.
4. Sales for 2008 were $120,000.

Instructions: Prepare a statement of cash flows for the year ended December 31, 2008, using the indirect method.

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Solution Preview

Please see the attached Excel 97-2003 spreadsheet for proper format and formulas.

A comparative balance sheet for Tiger Company appears below:
TIGER COMPANY
Comparative Balance Sheet
12/31/2008 12/31/2007 Change
Assets
Cash $23,000 $10,000 $13,000
Accounts receivable 18,000 14,000 $4,000
Inventory 27,000 18,000 $9,000
Prepaid expenses 6,000 9,000 $(3,000)
Long-term investments - 18,000 $(18,000)
Equipment 60,000 32,000 $28,000
Accumulated depreciationâ?"equipment    (18,000) (14,000) $(4,000)
Total assets $116,000 $87,000 ...

Solution Summary

This solution illustrates how to prepare a Statement of Cash Flows using the indirect method.

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1) Prepare statement of cash flows (indirect method) using balance sheet data. Presented below {see attached} are comparative balance sheets for Millco, Inc., at January 31 and February 28, 2004.

2) Write 350-500 words discussing how the different sections of the statement of cash flows assist different sets of users.

3) Also discuss the merits of using the direct method versus the indirect method of preparation

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