Statement of Cash Flows Preparation and Explanation

How can we prepare Tiger Enterprises' statement of cash flows for the year ended December 31, 2018 using the indirect method? What are the key components and calculations involved in this process?

Tiger Enterprises Statement of Cash Flows

Cash flow from operating activities

Net income: $1,308

Adjustment to reconcile net income:

+ Depreciation: $270

+ Decrease in accounts receivable: $95

+ Increase in income tax payable: $35

- Increase in inventory: ($55)

- Increase in prepaid insurance: ($45)

- Decrease in accounts payable: ($75)

- Decrease in other expenses payable: ($115)

Net cash flow from operating activities: $1,418

Cash flow from investing activities

Acquisition of Plant, Property & Equipment: ($450)

Net cash flow from investing activities: ($450)

Cash flow from financing activities

Proceeds from notes payable: $230

Proceeds from issuance of common stock: $130

Payment of dividends: ($1,198)

Net cash flow from financing activities: ($838)

Total cash flow increase: $130

Cash balance December 31, 2017: $230

Cash balance December 31, 2018: $360

The Indirect Method for the Statement of Cash Flow involves adjusting the Net Income with changes in balance sheet items, which includes addition or deduction based on the increase or decrease in the corresponding account balances from the previous year.

To prepare Tiger Enterprises' statement of cash flows using the indirect method, we start with the net income and add or subtract changes in the balance sheet accounts.

Explanation:

Cash: $360 - $230 (+$130 change)

Net income: $1,308

Depreciation: $270

Accounts receivable: -$95 change

Inventory: +$55 change

Prepaid insurance: +$45 change

P, P & E: +$450 change

Accounts payable: -$75 change

Other expenses payables: -$115 change

Income tax payable: +$35 change

Notes payable: +$230 change

Common stock: +$130 change

Retained earnings: +$110 change

Dividends paid: $1,198 (Net income - change in retained earnings)

The change in Retained Earnings is the Net Income minus Dividends. Using algebra, we know that Dividends equals Net Income minus the change in Retained Earnings. In this case, Dividends = $1,308 - ($605 - $495) = $1,198. Subtract this.

After executing these steps, you will get the net cash provided by operating activities.

Final answer:

The preparation of Tiger Enterprises' statement of cash flows involves adjusting the Net Income with changes in balance sheet items and analyzing the changes in various accounts to determine the cash flow from operating, investing, and financing activities. This process provides insights into the company's liquidity and financial health.

← The truth about spy time series data Bailment understanding the legal relationship →