Statement of cash flows 3-9

3-9.
MEASURING CASH FLOWS
DATA
Abrahams Manufacturing Company Balance Sheet
At 12/31/2009 and 12/31/2010
Assets:	2009		2010
Cash	$89,000		$100,000
Accounts Receivable	64,000		70,000
Inventory	112,000		100,000
Prepaid expenses	10,000		10,000
Total current assets	275,000		280,000
Gross plant and equipment	238,000		311,000
Accumulated Depreciation	(40,000)		(66,000)
Total assets	$473,000		$525,000
Liabilities and Equity	2009		2010
Accounts Payable	$85,000		$90,000
Accrued liabilities	68,000		63,000
Total current liabilities	153,000		153,000
Mortgage Payable	70,000		0
Preferred stock	0		120,000
Common stock	205,000		205,000
Retained earnings	45,000		47,000
Total liabilities and equity	$473,000		$525,000
Abrahams Manufacturing Company Income Statement
For the Year Ended 12/31/2010
Sales (all credit)				$184,000
Less: cost of goods sold				60,000
Gross profits				124,000
Less: operating expenses
General and administrative		44,000
Depreciation		26,000
Total				70,000
Operating income				54,000
Interest expense				4,000
Earnings before taxes				50,000
Taxes				16,000
Preferred stock dividends				10,000
Net income available to common stockholders				24,000
1. The only entry in the accumulated depreciation account is for 2010 depreciation.
2. Common stock dividends for 2010		22,000

Solution
Statement of Cash Flows
Cash Flows from Operating Activities
Net Income		34,000
Adjustments
Depreciation	26,000
Increase in accounts receivable	(6,000)
Decrease in inventory	12,000
Increase in accounts payable	5,000
Decrease in accrued liabilities	(5,000)	32,000
Net cash provided from operating activities		$66,000
Cash Flows from Investing Activities
Increase in gross plant and equipment		(73,000)
Net cash used for investing activities		($7,000)
Cash Flows from Financing Activities
Decrease in mortgage payable	(70,000)
Increase in preferred stock	120,000
Dividends(10,000 + 22,000)	(32,000)	18,000
Net cash provided from financing activities
Net increase in cash	11,000
Cash, January 1, 2010	89,000
Cash, December 31, 2010	$100,000

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