Question

Preparing the statement of cash flows—indirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:

Additionally, Rolling Hills purchased land of \(21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Short answer

1. Net cash from operating activities is $125,100.
2. Value of new investment during the year is $23,600

Step-by-step solution

Statement of cash flows using the indirect method

ROLLING HILLS, INC. Statement of Cash Flows For the year ended December 31, 2018
Cash flow from operating activities
Net Income	$96,400
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$14,400
Increase in account receivables ($440,000-$438,900)	($1,100)
Decrease in merchandise inventory ($209,200-$197,500)	$11,700
Increase in account payable ($35,700-$30,400)	$5,300
Decrease in accrued liabilities ($28,700-$30,300)	($1,600)
Net cash provided/ (used) in operating activities	$125,100
Cash Flows From Investing Activities:
Purchase of land	($23,600)
Net cash provided/ (used) in investing activities	($23,600)
Cash Flows From Financing Activities:
Issuance of common stock	$24,400
Payment of notes payable	($50,100)
Dividend paid	($64,600)
Net cash provided/ (used) in financing activities	($90,300)
Net increase/(Decrease) in cash	$11,200
Cash Balance, December 31, 2017	$15,700
Cash Balance, December 31, 2018	$26,900

Schedule of non-cash investing and financing activities

ROLLING HILLS, INC. Statement of Cash Flows (Partial) For the year ended December 31, 2018
Non-cash Investing and financing activities
Acquisition of land by issuing long-term notes payable	$21,100
Total Non-cash Investing and financing activities	$21,100

Evaluation of the investment  

The value of the purchase of the plant is determined by taking the opening balance i.e., $114,650 and subtracting the cost of the sold plant i.e., $13410 then comparing it to the closing balance of the plant i.e., $124840. Therefore, the difference now will be the purchase of the plant i.e., $23600.