Question

The following information is taken from French Corporation's financial statements:

Answer 1

Answer and Explanation:

The preparation of the cash flows statement is presented below:

Cash flow from operating activities

Net income                                                                    $78,300

Adjustments in net income

Add: Amortization of patents                     $5,000

Add: Depreciation expense                       $19,000

Less: Increase in prepaid expense           ($700)

($7,500 - $6,800)

Less: Increase in accounts receivable    ($20,600)

($102,000 - $80,000) - ($4,500 - $3,100)

Decrease in Inventory                                $15,000

($160,000 - $175,000)

Increase in accounts payable                     $6,000

($90,000 - $84,000)

Decrease in accrued liabilities                    ($9,000)       $14,700

($54,000 - $63,000)

Cash flow from operating activities                               $93,000

Cash flow from Investing activities

Sales of patents                                            10,000  

($20,000 - $35,000) - $5,000)

Land purchased                                           ($40,000 )

($100,000 - $60,000)

Building purchased                                      ($50,000)

($294,000 - $244,000)

Cash flow from Investing activities                                ($80,000)

Cash flow from Financing activities

Bonds purchased                                         $65,000

($125,000 - $60,000)

Common stock    

Additional paid in capital

Dividend paid                                                 ($35,000)

Treasury stock                                                ($7,000)

($15,000 - $8,000)

Net Cash flow from Financing activities                       $23,000

Net Cash flow                                                                    $36,000

($93,000 - $80,000 + $23,000)

Add Beginning cash and cash equivalent                        $27,000

Ending cash and cash equivalent                                   $63,000

($36,000 + $27,000)

Therefore, we represent the negative value is cash outflow while the positive value is cash inflow.