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Problem-Solving Strategy
Problem 16-1 (Algorithmic)
Statement of Cash Flows—Indirect Method
The comparative balance sheet of Mavenir Technologies Inc. for December 31, 2013 and 2012, is shown as follows:
Dec. 31, 2013 Dec. 31, 2012
Assets
Cash $225,130 $209,670
Accounts receivable (net) 81,560 75,300
Inventories 230,230 222,960
Investments 0 86,380
Land 118,090 0
Equipment 254,020 197,120
Accumulated depreciation-equipment (59,470) (53,160)
Total $849,560 $738,270
Liabilities and Stockholders' Equity
Accounts payable (merchandise creditors) $153,770 $145,440
Accrued expenses payable (operating expenses) 15,290 19,200
Dividends payable 8,500 6,640
Common stock, $10 par 45,880 36,180
Paid-in capital in excess of par-common stock 172,460 100,400
Retained earnings 453,660 430,410
Total $849,560 $738,270
The following additional information was taken from the records:
The investments were sold for $101,060 cash.
Equipment and land were acquired for cash.
There were no disposals of equipment during the year.
The common stock was issued for cash.
There was a $57,950 credit to Retained Earnings for net income.
There was a $34,700 debit to Retained Earnings for cash dividends declared.
Instructions:
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Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use a minus sign to indicate cash outflows, negative amounts or a decrease in cash.
Mavenir Technologies Inc.
Statement of Cash Flows
For the Year Ended December 31, 2013
Cash flows from operating activities:
$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities
$
Cash flows from investing activities:
$
$
Net cash flow used for investing activities
Cash flows from financing activities:
$
Net cash flow provided by financing activities
$
Cash at beginning of the year
Cash at end of the year
$
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Calculate the increases and decreases in the accounts. Start with net income and add back all noncash expenses. Add decreases in assets and increases in liabilities. Subtract decreases in liabilities and increases in assets. Losses and gains are a result of investing activities. They are added to or subtracted from net income.
Cash flows from investing activities are the result of transactions affecting investments in noncurrent assets, including fixed assets, intangibles, and investments.
Cash flows from financing activities are the result of transactions affecting the debt and equity, including bonds, notes payable, and preferred and common stock.
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Question 1 of 1
Problem 16-01 Algorithmic
To prepare the statement of cash flows using the indirect method, you need to follow these steps:
Step 1: Calculate the net cash flow from operating activities.
- Start with net income and add back all non-cash expenses.
- Add decreases in assets and increases in liabilities.
- Subtract decreases in liabilities and increases in assets.
Step 2: Calculate the net cash flow used for investing activities.
- Include any cash inflows or outflows related to the purchase or sale of long-term assets, such as equipment, land, or investments.
Step 3: Calculate the net cash flow provided by financing activities.
- Include any cash inflows or outflows related to obtaining or repaying financing, such as issuing or repurchasing common stock, paying dividends, or borrowing or repaying debt.
Step 4: Calculate the cash at the beginning and end of the year.
- The cash at the beginning of the year can be taken from the balance sheet for December 31, 2012.
- The cash at the end of the year can be taken from the balance sheet for December 31, 2013.
Once you have completed these calculations, you can fill in the statement of cash flows by categorizing the cash flows into operating, investing, and financing activities, and then calculating the total net cash flow for each category. Finally, include the cash at the beginning and end of the year.
I hope this helps! Let me know if you have any further questions.
To prepare the statement of cash flows using the indirect method, you need to follow these steps:
1. Start with the net income: In this case, the credit to Retained Earnings for net income was $57,950, so you would start with that.
2. Add back noncash expenses: Review the additional information provided and identify any noncash expenses, such as depreciation. In this case, the accumulated depreciation on equipment increased by $6,310 ($59,470 - $53,160), so you would add that to the net income.
3. Adjust for changes in current operating assets and liabilities: Look at the changes in the current operating assets (such as accounts receivable and inventories) and liabilities (such as accounts payable and accrued expenses payable). Identify any increases or decreases and adjust the net income accordingly.
4. Cash flows from operating activities: Sum up the changes in the net income, noncash expenses, and changes in current operating assets and liabilities. This will give you the net cash flow from operating activities.
5. Cash flows from investing activities: Look at the changes in the investing activities, such as the sale of investments and the acquisition of equipment and land. Add or subtract these amounts to calculate the net cash flow from investing activities.
6. Cash flows from financing activities: Consider any financing activities, such as the issuance of common stock and the payment of dividends. Add or subtract these amounts to calculate the net cash flow from financing activities.
7. Cash at the beginning and end of the year: Determine the cash balance at the beginning and end of the year based on the information provided. The cash at the beginning of the year is $209,670, and the cash at the end of the year is unknown.
By following these steps and making the necessary calculations, you will be able to prepare the statement of cash flows using the indirect method for Mavenir Technologies Inc. for the year ended December 31, 2013.