Question

The following is a Comparative statement of financial position accounts of Marcus AG are presented below.

Additional data (ignoring taxes):

1. Net income for the year was €42,500.

2. Cash dividends declared and paid during the year were €21,125.

3. A 20% share dividend was declared during the year. €25,000 of retained earnings was capitalized.

4. Equity investments that cost €25,000 were sold during the year for €28,750.

5. Machinery that cost €3,750, on which €750 of depreciation had accumulated, was sold for €2,200. Marcus’s
2022 income statement follows (ignoring taxes).
Instructions

a. Compute net cash flow from operating activities using the direct method.

b. Prepare a statement of cash flows using the indirect method.

Answer

In the sale and purchase of non-current assets and long-term investments, cash flow refers to the influx and
outflux of cash from investments

a.Calculation of cash influx using direct methods

Marcus Inc
Statement of cash flows for
For the year ended December 31, 2022

Amount ($) Amount ($)

Cash flows from operating activities
Cash received from customers (540,000 – 10,500 –
4,650) 524,850
Cash Payments:
To Suppliers (380,000 + 6,000 – 10,250) 375,750
For operating expenses (120,450 – 8,625 – 750) 105,675 481,425
Net cash provided by operating activities 43,425

b. Statements of Cashflow using the indirect method

Marcus Inc.
Statement of cash flows for
For the year ended December 31, 2022

Cash flows from operating activities Amount ($) Amount ($)

Net Income 42,500
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation expense 8,625
Gain on sale of investments (3,750)
Loss on sale of machinery 800
Increase in accounts receivables (net) (9,750)
Increase in inventory (6,000)
Increase in accounts payable 10,250
Increase in accrued payable 750 925
Net cash provided by operating activities 43,425
Cash flows from Investing activities
Purchase of investments [22,250-(38,500-25,000)] (8,750)
Purchase of machinery [30,000-(18,750-3,750)] (15,000)
Sale of investment 28,750
Sale of equipment 2,200
Addition to buildings (11,250)
Net cash provided by investing activities (4,050)
Cash flows from financing activities
Payments of long-term notes payable (10,000)
Cash dividends paid (21,125)
Net cash used by financing activities (31,125)
Net Increase in cash 8,250
Cash, January 1, 2022 33,750
Cash, December 31, 2022 42,000