Aunt Rhea Corporation
Income Statement
For the Year Ended December 31, 2015
Service Revenue $ 900,000
Operating Expenses 700,000
Net Income before Income Tax $ 200,000
Gain on Investment Sale 10,000
Net income Before Income Taxes $ 210,000
Income Tax Expense 90,000
Net Income $ 120,000
The following partial balance sheet information is also available for 2015 and 2014:
2015 2014
Cash $ 655,000 $ 400,000
Accounts Receivable 120,000 100,000
Merchandise Inventory 40,000 50,000
Supplies 10,000 20,000
Investments 30,000 110,000
Accounts Payable 70,000 60,000
Income Taxes Payable 10,000 15,000
In addition the following transactions took place during 2015:
1. Common stock was issued for $100,000 cash.
2. Long-term investments were sold for $55,000.
3. Cash dividends of $80,000 were paid.
4. The listed operating expenses included a $25,000 loss on the sale of investments and depreciation of $30,000..
Required: Prepare in good form, a cash flow statement for 2015 using the indirect method for Aunt Rhea Corporation.
To prepare the cash flow statement for Aunt Rhea Corporation for the year 2015 using the indirect method, you need to analyze the changes in the company's balance sheet accounts and adjust them for the effects of the company's operating, investing, and financing activities. Let's go through each section step by step:
1. Operating Activities:
- Start with Net Income ($120,000) from the income statement.
- Add back non-cash expenses such as depreciation ($30,000).
- Adjust for changes in operating assets and liabilities:
- Increase in Accounts Receivable ($20,000): Deducted from the net income.
- Decrease in Merchandise Inventory ($10,000): Added to the net income.
- Decrease in Supplies ($10,000): Added to the net income.
- Increase in Accounts Payable ($10,000): Deducted from the net income.
- Decrease in Income Taxes Payable ($5,000): Added to the net income.
- Calculate the Net Cash Provided by Operating Activities.
2. Investing Activities:
- Include the sale of long-term investments ($55,000): Added to the net cash provided by operating activities.
- Calculate the Net Cash Provided by Investing Activities.
3. Financing Activities:
- Include the issuance of common stock ($100,000): Added to the net cash provided by operating activities.
- Include the payment of cash dividends ($80,000): Deducted from the net cash provided by operating activities.
- Calculate the Net Cash Provided by Financing Activities.
4. Calculate the Net Increase in Cash:
- Add the Net Cash Provided by Operating Activities, Net Cash Provided by Investing Activities, and Net Cash Provided by Financing Activities.
5. Calculate the Ending Cash Balance:
- Add the Net Increase in Cash to the Beginning Cash Balance for 2015 ($655,000).
Now that you have all the necessary information from the provided data, you can prepare the cash flow statement for Aunt Rhea Corporation for 2015 using the indirect method.