1 Change in account balance during the year Increase Decrease Current Assets Subtract from net income Add to net income Current Liabilities Add to net income Subtract from net income NOTE: The above table can be used when adjusting net income to operating cash flows using the INDIRECT METHOD.2 Statement of Cash Flows Example The following financial statements are available for Leonard Company on December 31, 2001. Leonard Company Comparative Balance Sheets Jan. 1, 2001 Dec. 31, 2001 Assets Current Assets: Cash and cash equivalents $52,000 $63,000 Accounts Receivable, net 168,000 157,000 Inventory 212,000 214,000 Total Current Assets 432,000 434,000 Land 97,000 107,000 Property & Equipment - at cost 300,000 333,000 Less Accumulated depreciation (170,000) (182,000) Net Property & Equipment 130,000 151,000 Total Assets $659,000 $692,000 Liabilities and Equity Current Liabilities: Accounts payable - trade $78,000 $83,000 Interest Payable 8,000 7,000 Total Current Liabilities 86,000 90,000 Note Payable 100,000 80,000 Common Stock 350,000 375,000 Retained Earnings 123,000 147,000 Total Liabilities and Stockholders' Equity $659,000 $692,0003 Leonard Company Income Statement For year ended December 31, 2001 Revenues $800,000 Expenses Cost of Goods Sold 451,800 Wages and Salaries Expense 200,000 Depreciation Expense 48,000 Interest Expense 7,200 Income Tax Expense 25,000 Total (732,000) Plus: Gain on Sale of Equipment 6,000 Net Income $74,000 Other available information: • During the year, Leonard sold for $20,000 equipment costing $50,000 with $36,000 in Accumulated Depreciation. • Dividends were declared and paid to common stockholders during the year. No shares were repurchased during the year. • No new debt was issued and no land was sold during 2001. Required: Prepare a Statement of Cash Flows for Leonard Company for the year ended December 31, 2001. Show the cash flows from operations using both the indirect and the direct method.4 Leonard Company – Statement of Cash Flows Problem Land PP&E A/D Notes Payable Common Stock Retained
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