Question

Preparing the statement of cash flows—direct method Use the Rolling Hills, Inc. data from Problem P14-34A. Requirements

1. Prepare the 2018 statement of cash flows by the direct 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 direct method

Rolling Hills Inc. Statement of Cash Flows For the year ended December 31, 2018
Cash Flows From Operating Activities:
Receipts:
From customers ($25,400+$440,000-$26,500)	$438,900
Interest revenue	$8,700
Payments:
To accounts payable	($193,800)
To employees	($77,400)
To other operating expenses	($10,200)
For interest expense	($21,100)
To income tax	($20,000)
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.