Question

Golden Corp., a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

GOLDEN CORPORATION Comparative Balance Sheets December 31, 2017 and 2016

2017

2016

Assets:
Cash	\(164,000	\)107,000
Accounts receivables	83,000	71,000
Inventory	601,000	526,000
Total current assets	848,000	704,000
Equipment	335,000	299,000
Accumulated depreciation	(158,000)	(104,000)
Total assets	\(1,025,000	\)899,000
Liability and equity
Account payable	\(87,000	\)71,000
Income tax payable	28,000	25,000
Total current liabilities	115,000	96,000
Equity
Common stock, \(2 par value	592,000	568,000
Paid-in-capital in excess of par value, common stock	196,000	160,000
Retained earnings	122,000	75,000
Total liabilities and equity	\)1,025,000	\(899,000

GOLDEN CORPORATION Income Statement For Year Ended December 31, 2017

Sales		\)1,792,000
Cost of goods sold		(1,086,000)
Gross profit		706,000
Operating expenses
Depreciation expenses	\(54,000
Other expenses	494,000	(548,000)
Income before taxes		158,000
Income tax expenses		(22,000)
Net income		\)136,000

Additional Information on Year 2017 Transactions

a. Purchased equipment for \(36,000 cash.

b. Issued 12,000 shares of common stock for \)5 cash per share.

c. Declared and paid $89,000 in cash dividends.

Required

Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method.

Short answer

Net changes in the cash totals$57,000.

Step-by-step solution

Definition of Retained Earnings

Retained earnings can be defined as those of the business entity that are kept aside for making future dividend payments and re-investment in the business operations.

Statement of cash flow using the indirect method

Particular	Amount $	Amount $
Cash flow operating activities:
Net income		$136,000
Add/Less: Adjustments to the net income
Depreciation expenses	$54,000
Add/Less: Changes in current assets and liabilities
Increase in accounts receivable	(12,000)
Decrease in inventory	(75,000)
Increase in accounts payable	16,000
increase in income tax payable	3,000	(14,000)
Cash flow from operating activities		$122,000
Cash flow from investing activities:
Purchased equipment	(36,000)
Cash flow used in investing activities		($36,000)
Cash flow from financing activities:
Common stock issued	60,000
Cash dividend paid	(89,000)
Cash flow from financing activities		($29,000)
Net changes in cash		$57,000
Add: Beginning cash balance		107,000
Ending cash balance		$164,000