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The following are several items involving Tejera Company’s cash flow

Statement of Cash Flows

The following are several items involving Tejera Company’s cash flow activities:

  1. Net income, $66,400
  2. Receipt from issuance of common stock, $31,000
  3. Payment for purchase of equipment, $41,600
  4. Payment for purchase of land, $19,600
  5. Depreciation expense, $20,500
  6. Patent amortization expense, $1,200
  7. Payment of dividends, $21,000
  8. Decrease in salaries payable, $2,600
  9. Increase in accounts receivable, $10,600
  10. Beginning cash balance, $32,800

Required:

Prepare Tejera’s statement of cash flows using the indirect method. Use a minus sign for any negative amounts.

Answer and Explanation

TEJERA COMPANY
Statement of Cash Flows
For Year Ended December 31, Current Year

Net Cash Flow From Operating Activities
Net income66,400
Adjustments for differences between income flows and cash flows from operating activities:
Add: Depreciation expense20,500
Add: Patent amortization expense1,200
Less: Increase in accounts receivable(10,600)
Less: Decrease in salaries payable(2,600)
Net cash provided by operating activities74,900
Cash Flows From Investing Activities:
Payment for purchase of equipment(41,600)
Payment for purchase of land(19,600)
Net cash used for investing activities(61,200)
Cash Flows From Financing Activities
Payment of dividends(21,000)
Receipt from issuance of common stock31,000
Net cash provided by financing activities10,000
Net Increase in Cash23,700
Cash, January 132,800
Cash, December 3156,500

Explanation :

The following schedules will help you to identify the operating, investing and financing activities.

Operating Activities

A company's operating activities are part of the day-to-day business activities of a company - acquiring (purchasing or manufacturing), selling, and delivering goods and services to customers. Under the indirect method, a company's net income is adjusted (reconciled) to its net cash flow from operating activities. To do so, net income is listed first and then adjustments (additions or subtractions) are made to net income: 
Add to Net IncomeSubtract From Net Income
Decreases in Current Assets
-Decrease in accounts receivable
-Decrease in inventory
-Decrease in prepaid expenses
-Decreases in other current assets*
Increases in Current Assets
-Increase in accounts receivable
-Increase in inventory
-Increase in prepaid expenses
-Increases in other current assets*
Increases in Current Liabilities
-Increase in accounts payable
-Increase in salaries payable
-Increase in interest payable
-Increase in income taxes payable
-Increase in deferred revenues
-Increases in other current liabilities*
Decreases in Current Liabilities
-Decrease in accounts payable
-Decrease in salaries payable
-Decrease in interest payable
-Decrease in income taxes payable
-Decrease in deferred revenues
Decreases in other current liabilities*
Other Adjustments
-Depreciation, depletion, and amortization expense
-Loss (net) on disposal (or impairment) of assets or liabilities
-Loss under the equity method
-Amortization of discount on bonds payable
-Amortization of premium on investment in bondsIncrease in deferred tax liability
-Decrease in deferred tax asset
-Increase in accrued pension cost
-Decrease in prepaid pension cost
Other Adjustments
– Gain (net) on disposal of assets or liabilitiesIncome under the equity method
– Amortization of premium on bonds payable
-Amortization of discount on investment in bonds
-Decrease in deferred tax liability
-Increase in deferred tax asset
-Decrease in accrued pension costIncrease in prepaid pension cost
*related to operating activities

Investing Activities

A company’s investing activities are those transactions that involve acquiring and selling productive assets and investments needed to achieve the operating objectives of the business.

Cash inflows from investing activities include cash receipts for the:

  1. sale of property, plant, and equipment
  2. sale of investments classified as available for sale and held-to-maturity
  3. repayment of principal from loans made to other companies

Cash outflows for investing activities include cash payments to:

  1. acquire property, plant, and equipment
  2. acquire investments classified as available for sale and held-to-maturity
  3. make loans to other companies

Financing Activities

A company’s financing activities include its transactions involving obtaining resources from owners and providing them with a return on their investment as well as borrowing money from creditors and repaying those obligations.

Cash inflows from financing activities include cash receipts from issuing:

  1. equity securities (i.e., common stock and preferred stock)
  2. financing instruments (i.e., bonds, short-term or long-term notes, mortgages, capital leases, and other short- or long-term borrowings)

Cash outflows for financing activities include cash payments for:

  1. dividends
  2. repurchase of the company’s equity securities
  3. repayments of amounts borrowed through financing instruments

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