Exercises on Cash Flow Statement

Exercise 1
The income statement of ADV Company is presented below.
Income Statement For the Year Ended December 31, 2019
Sales revenue 5250000
Less: Cost of goods sold
Beginning inventory 1780000
Purchases 3430000
Goods available for sale 5210000
Ending inventory 1900000
Total cost of goods sold 3310000
Gross profit 1940000
Less: Operating expenses
Depreciation expense 95000
Amortization expense 20000
Other expenses 945000 1060000
Net income 880000

Additional information:
➢ Accounts receivable decreased $230,000 during the year
➢ Prepaid expenses increased $125,000 during the year.
➢ Accounts payable to merchandise suppliers increased $50,000 during the year.
➢ Accrued expenses payable increased $155,000 during the year.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December
31, 2019, for ADV Company, using the indirect method.

PGDM C 2022/CFS/Exercises/Anto Joseph

Exercise 2
GCM Corporation’s comparative balance sheets are presented below.
Comparative Balance Sheets on December 31
2019 2018
Liabilities and Owners’ Equity
Common stock 75000 69000
Retained earnings 23130 20000
Accounts payable 17370 30000
Total 115500 119000
Assets
Land 20000 26000
Building 70000 70000
Accumulated depreciation (15000) (10000)
Accounts receivable 21200 23000
Cash 19300 10000
Total 115500 119000

Additional information:
➢ Net income was $27,630. Dividends declared and paid were $24,500.
➢ All other changes in noncurrent account balances had a direct effect on cash flows, except
the change in accumulated depreciation. The land was sold for $3,900.
Instructions
➢ Prepare a statement of cash flows for 2019 using the indirect method.
➢ Compute free cash flow.

PGDM C 2022/CFS/Exercises/Anto Joseph

Exercise 3

Here are the comparative balance sheets for Sunrise Company.

Comparative Balance Sheets on December 31
2019 2018
Liabilities and Owners’ Equity
Common stock 226000 174000
Retained earnings 199000 134000
Bonds payable 150000 200000
Accounts payable 39000 47000
Total 614000 555000
Assets
Land 80000 100000
Equipment 250000 200000
Accumulated depreciation (61000) (32000)
Inventories 175000 189000
Accounts receivable 85000 76000
Cash 85000 22000
Total 614000 555000

Additional information:
➢ Net income for 2019 was $99,000.
➢ Cash dividends of $34,000 were declared and paid.
➢ Bonds payable amounting to $50,000 were redeemed for cash $50,000.
➢ Common stock was issued for $52,000 cash.
➢ No equipment was sold during 2019.
Instructions
Prepare a statement of cash flows for 2019 using the indirect method.

PGDM C 2022/CFS/Exercises/Anto Joseph

Exercise 4
Instruction
Prepare a statement of cash flows using the indirect method and compute free cash flow for JKK
Ltd. from the following information.
Comparative Balance Sheets on December 31
2019 2018
Liabilities and Owners’ Equity
Common stock 25000 25000
Retained earnings 31000 28000
Bonds payable 20000 10000
Income taxes payable 24000 20000
Accounts payable 31000 43000
Total 131000 126000
Assets
Equipment 70000 78000
Accumulated depreciation (27000) (24000)
Inventory 45000 25000
Accounts receivable 25000 14000
Cash 18000 33000
Total 131000 126000

Income Statement for the Year Ended December 31, 2019

Sales revenue 286000
Cost of goods sold 204000
Gross profit 82000
Operating expenses 37000
Income from operations 45000
Interest expense 7000
Income before income taxes 38000
Income tax expense 10000
Net income 28000

Additional data:
➢ The depreciation expense was $6,000.
➢ Dividends of $25,000 were declared and paid.
➢ During the year, equipment was sold for $12,000 cash. This equipment cost $15,000
originally and had accumulated depreciation of $3,000 at the time of sale.
➢ Additional equipment was purchased for $7,000 cash.

PGDM C 2022/CFS/Exercises/Anto Joseph