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Question:Mortonson Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earnings for the year ended December 31, 2017, are presented as follows.

MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017 (\(000 OMITTED)
Sales revenue		\)3,800
Expenses
Cost of goods sold	\(1,200
Salaries and benefits	725
Heat, light and power	75
Depreciation	80
Property tax	19
Patent amortization	25
Miscellaneous expenses	10
Interest	30	2,164
Income before taxes		1,636
Income tax		818
Net income		818
Retained earnings – Jan 1, 2017		310
		1,128
Stock dividend declared and issued		600
Retained earnings Dec 31, 2017		\)528

MORTONSON COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 (\(000 OMITTED)
Assets	2017	2016
Current assets
Cash	\)333	\(100
U.S treasury notes (available for sale)	10	50
Accounts receivables	780	500
Inventory	720	560
Total current assets	1,843	1,210
Long-term assets
Land	150	70
Building and equipment	910	600
Accumulated depreciation – building and equipment	(200)	(120)
Patent (less: amortization)	105	130
Total long-term assets	965	680
Total assets	\)2,808	\(1,890
Liabilities and stockholder’s equity
Current liabilities
Account payable	\)420	\(330
Income tax payable	40	30
Notes payable	320	320
Total current liabilities	780	680
Long-term note payable	200	200
Total liabilities	980	880
Stockholder’s equity
Common stock	1,300	700
Retained earnings	528	310
Total stockholder’s equity	1,828	1,010
Total liabilities and stockholder’s equity	\)2,808	$1,890

Instructions

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and the cost of goods sold. Do not prepare a reconciliation schedule.

Step by step solution

01

Definition of Cash flow Statement

A cash flow statement is a summary of the cash inflows and outflows that occurred during a specific period. This summary of inflows and outflows is prepared in three sections; investing, financing, and operating.

02

Statement of cash flow using the direct methodStep 2: Statement of cash flow using the direct method

Particular	Amount $	Amount $
Cash collected from customers		$3,520
Cash payments:
Suppliers	(1,270)
Salaries and benefits	(725)
Heat, light and power	(75)
Property tax	(19)
Miscellaneous expenses	(10)
Interest	(30)
Income tax expenses	(808)	(2,937)
Cash flow from operation		$583
Cash flow from investing activities
Acquisition of land	(80)
Sale of investment	40
Acquisition of building and equipment	(310)
Cash flow used in investing activities		($350)
Cash flow from financing activities
Stock dividend does not provide any cash inflow	0
Cash flow from financing activities		$0
Net changes in cash		$233
Add: opening cash balance		100
Ending cash balance		$333

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