Apparel Company Comparative Balance Sheet December 31 2002 2

Apparel Company Comparative Balance Sheet December 31, 2002 2002 2001 Difference Assets 4,500 2,500 (1,000) 2,000 (100) 15,000 (13,500) $ 134,000$ 129,1004,900 7,000 $ Cash Accounts receivable (net) Inventory Prepaid insurance Equipment Accumulated Depreciation -Equipment 37,000 37,000 500 100,000 (47,500) 38,000 35,000 600 85,000 (34,000) Total assets Liabilities and Equities Accounts payable Accruals payable Notes payable Common stock Retained earnings $35,000 $ 32,000 $3,000 (400) (1,000) 25,000 (21,700) $ 134,000 $ 129,100 $ 4,900 800 9,000 50,000 39,200 1,200 10,000 25,000 60,900 Total liabilities and equity he Apparel Company paid dividends of $25,000 during the year. There were no gains or losses from ransactions involving noncurrent accounts during the year. equired: Prepare a statement of cash flows, using the indirect method

Solution

Firstly we need to calculate net income for the year 2002 which is shown as follows:-

Ending Retained Earnings = Beg. Retained Earnings+Net Income-Dividends

$39,200 = $60,900+Net Income-$25,000

$39,200-$60,900+$25,000 = Net Income

Net Income =  $3,300

Therefore the net income for the year 2002 is $3,300.

As there is no gain or loss from transactions involving non current accounts it is assumed that no equipment is sold during 2002 and increase of $15,000 in Equipment is due to purchase of equipment. This also means that all the increase in the Accumulated Depreciation is due to depreciation expense of 2002.

Apparel Company

Statement of Cash Flows

For the year ended Dec 31, 2002 (Amounts in $)

Cash Flows from Operating Activities
Net Income		3,300
Adjustments to reconcile net inome to cash flows from operating activities
Add: Depreciation Expenses	13,500
Changes in Current Assets and Current Liabilities
Add: Decrease in Accounts Receivable	1,000
Less: Increase in Inventory	(2,000)
Add: Increase in Prepaid Insurance	100
Add: Increase in Accounts Payable	3,000
Less: Decrease in Accruals Payable	(400)
Less: Decrease in Notes Payable	(1,000)	14,200
Net cash provided by operating activities (A)		17,500
Cash Flows from Investing Activities
Purchase of Equipment	(15,000)
Net cash used in investing activities (B)		(15,000)
Cash Flows from Financing Activities
Dividends Paid	(25,000)
Issue of Common Stock	25,000
Net cash provided by financing activities (C)		0
Net Increase/(Decrease) in Cash (A+B+C)		2,500
Add: Cash Balance at the Beginning of Year		4,500
Cash Balance at the End of Year		7,000