Question

(Schedule of Net Cash Flow from Operating Activities—Indirect Method)

Ballard Co. reported \(145,000 of net income for 2017. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2017 that might affect cash flows from the operating activities.

1. Ballard purchases 100 shares of treasury stock at a cost of \)20 per share. These shares are then resold at \(25 per share.
2. Ballard sold 100 shares of IBM common at \)200 per share. The acquisition cost of these shares was \(145 per share. There were no unrealized gains or losses recorded on this investment in 2017.
3. Ballard revised its estimates for bad debts. Before 2017, Ballard’s bad debt expenses was 1% of its net sales. In 2017, this percentage was increased to 2%. Net sales for 2017 were \)500,000 and net accounts receivable decreased by \(12,000 during 2017.
4. Ballard issued 500 shares of its \)10 par common stock for a patent. The market price of the shares on the date of the transaction was \(23 per share.
5. Depreciation expense is \)39,000.
6. Ballard Co. holds 40% of the Nirvana company’s common stock as a long-term investment. Nirvana company reported \(27,000 of net income for 2017.
7. Nirvana company paid a total of \)2,000 of cash dividend to all investees in 2017.
8. Ballard declared a 10% stock dividend. One thousand shares of $10parcommonstockweredistributed.Themarketpriceatdateofissuancewas$20 per share.

Instructions

Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2017 net cash flow from operating activities.

Short answer

The business entity generates$180,500of cash from operating activities.

Step-by-step solution

Definition of Operating Activities

All activities concerned with daily business operations are known as operating activities. It includes activities such as sales, production, and purchases.

Net cash flow from operating activities under indirect method

Particular	Amount $
Net income	$145,000
Less: Gain from sale of investment $\mathbf{[}\mathbf{(}\mathbf{200}\mathbf{-}\mathbf{145}\mathbf{)}\mathbf{\times }\mathbf{\$}\mathbf{100}\mathbf{]}$	($5,500)
Add: Dividend from equity investment $\mathbf{[}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{40}\mathbf{\%}\mathbf{]}$	800
Less: Income from equity investment $\mathbf{[}\mathbf{\$}\mathbf{27}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{40}\mathbf{\%}\mathbf{]}$	(10,800)
Add: Depreciation expenses	$39,000
Add: Decrease in accounts receivables	$12,000
Net cash provided by operating activities	$180,500