Bought equipment for cash, $48,900. Paid $14,700 on the long-term note payable. Issued new shares of stock for $38,050 cash. Dividends of $650 were declared and paid. Other expenses all relate to wages. Accounts payable includes only inventory purchases made on credit. Required: 1. Prepare the statement of cash flows using the direct method for the year ended December 31, current year.

Part a

Statement of Cash flows for the year ended December 31

Cash flow from Operating Activities

Net Income                                                                 26,800

Add Depreciation                                                         11,700

Adjust for Changes in Working Capital

Increase in Accounts Receivable                               (6,100)

Increase in Inventory                                                    5,450

Decrease in Accounts Payable                                  (2,500)

Decrease in Wages Payable                                         (700)

Cash flow from Investing Activities

Equipment Purchased                                             (48,900)

Cash flow from Financing Activities

Retired Long term note payable                              (14,700)

New Stock Issues                                                      38,050

Dividends Paid                                                              (650)

Changes in Cash and Cash Equivalent                      7,550

Beginning Cash and Cash equivalent                      65,700

Ending Cash and Cash equivalent                            73,250

Part b

Sources of Cash : Issue of Stock

Uses of Cash : Purchase of Equipment

Explanation:

NOTE : I have attached the full question as image below.

The Indirect method has been required for this question. This means we reconcile the Net Income to Operating Cash flow by adjusting non-cash items in Income and changes in working capital.

answer; the above statement is (true);