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Question: (SCF—Indirect Method) Condensed financial data of Pat Metheny Company for 2017 and 2016 are presented below.

PAT METHENY COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
	2017	2016
Cash	\(1,800	\)1,150
Receivables	1,750	1,300
Inventory	1,600	1,900
Plant assets	1,900	1,700
Accumulated depreciation	(1,200)	(1,170)
Long-term-investment (Held to maturity)	1,300	1,420
	\(7,150	\)6,300
Account payable	\(1,200	\)900
Accrued liabilities	200	250
Bond payable	1,400	1,550
Common stock	1,900	1,700
Retained earnings	2,450	1,900
	\(7,150	\)6,300

PAT METHENY COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017
Sales	\(6,900
Cost of goods sold	(4,700)
Gross margin	2,200
Selling and administrative expenses	930
Income from operations	1,270
Other revenue and gains
Gains on sale of investment	80
Income before tax	1,350
Income tax expenses	540
Net income	810
Cash dividend	260
Income retained in business	\)550

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2017.

Instructions

Prepare a statement of cash flows using the indirect method.

Step by step solution

01

Definition of Statement of Cash Flow

The schedule that provides the summary of all the transactions, including cash payments and receipts, is known as the cash flow statement.

02

Statement of cash flows using the indirect method

Particular	Amount $
Net income	$810
Add/less: adjustments to net income
Depreciation	30
Add/less: Change in the current assets and liabilities
Increase in receivables	(450)
Gain on sale of investment	(80)
Decrease in inventory	300
Increase in accounts payable	300
Decrease in accrued liabilities	(50)
Cash flow from operations (A)	$860
Investing activities:
Purchase of plant assets	(130)
Sale of held to maturity security	200
Cash flow from investing activities (B)	$70
Financing Activity:
Cash dividend	(260)
Redemption of bonds	(150)
Issuance of capital	130
Cash used in financing activities (C)	($280)
The net change in a cash balance	$650
Add: Opening cash balance	$1,150
Closing cash balance (2017 balance)	$1,800
Non-cash significant financing and investing activity
Issue of common stock against the acquisition of plant	$70

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