Statement of Cash Flow

The income statement, balance sheet, and supplementary information for M. Company are as
follows:
M. COMPANY
Income Statement, year ended December 31, 2019

Sales revenue $ 50,000

Amortization expense - patent $ 150
Depreciation expense - equipment 1,000
Cost of goods sold 28,000
Income tax expense 3,500
Interest expense 800
Loss on sale of equipment 200
Miscellaneous expenses 400
Salaries expense 9,500 43,550
Net income $ 6,450

M. COMPANY
Statement of Financial Position, December 31, 2019

2019 2018
Cash $ 5,400 $ 4,500
Accounts receivable 11,000 7,400
Allowance for doubtful accounts -500 -400
Inventory 13,000 11,000
Equipment 29,000 31,650
Accumulated depreciation & amortization -4,500 -5,000
Patents 1,500 1,650
Land 16,250 10,000
$ 71,150 $ 60,800

Accounts payable $ 13,000 $ 10,000

Salaries payable 10,000 10,500
Income tax payable 7,000 5,000
Long-term bonds payable 6,500 9,000
Common shares, no par value 24,150 19,000
Retained earnings 10,500 7,300
$ 71,150 $ 60,800

• Equipment which was no longer in use was sold for $950. It had originally cost
$2,650 and had accumulated depreciation of $1,500.
• Land was acquired for $4,250.
• Shares with a fair market value of $2,000 were issued in exchange for land.
• A cash dividend of $100 was paid and a 10% stock dividend (market value $3,150) was
issued.
• Long-term bonds with a face value of $2,500 were repurchased at par.

Required –
a. Prepare a statement of cash flow for the year ended December 31, 2019 using the indirect
method.
b. Prepare the operating section of the statement of cash flow using the direct method.
Problem 2 – Statement of Cash Flow

The comparative balance sheets and income statement of Worsley Ltd. are shown below.

WORSLEY LTD.
Statement of Financial Position
as at December 31

2019 2018
Current assets
Cash $ 137,000 $ 116,000
Accounts receivable 371,000 364,000
Inventory 460,000 486,000
Prepaid expenses 26,000 17,000
994,000 983,000
Capital assets 2,836,000 2,445,000
Accumulated amortization (1,121,000) (1,034,000)
1,715,000 1,411,000
$ 2,709,000 $ 2,394,000
Current liabilities
Accounts payable $ 436,000 $ 492,000
Unearned revenues 56,000 78,000
Interest payable 104,000 99,000
Income taxes payable 31,000 35,000
Dividends payable 35,000 23,000
662,000 727,000
Bonds payable 800,000 1,000,000
Mortgage payable 400,000 250,000
1,200,000 1,250,000
Shareholders’ equity
Common shares 500,000 100,000
Retained earnings 347,000 317,000
847,000 417,000
$ 2,709,000 $ 2,394,000
 WORSLEY LTD.
Income Statement
for the year ended December 31, 2019

Sales $ 4,971,000
Cost of goods sold (4,112,000)
Amortization expense (155,000)
Operating expenses (471,000)
Interest expense (84,000)
Income tax expense (36,000)
Gain on repayment of bonds payable 3,000
Loss on disposal of capital assets (4,000)
Net income $ 112,000

Additional information

1. On January 10, 2019, Worsley issued 10,000 common shares for capital assets. The
common shares had a current market value of approximately $75,000.
2. On March 16, 2019, Worsley sold a capital asset that cost $112,000.
3. On September 1, 2019, Worsley issued a 10% stock dividend to shareholders of record on
August 15, 2019. This increased common shares and decreased retained earnings by
$40,000.

Required

a. Prepare a cash flow statement for the year ending December 31, 2019. Use the indirect
approach to report the operating activities.
b. Prepare the cash flow from operations using the direct approach.