Page 663 - Accounting Principles (A Business Perspective)

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b. Prepare a statement of cash flows under the indirect method. Also prepare any necessary supplemental
schedule(s).

Alternate problems
Alternate problem A The following income statement and other data are for Kennesaw Auto Glass
Specialists, Inc..
Kennesaw auto glass specialists, Inc.
Income Statement
For the year ended 2010 December 31
Sales $450,000
Cost of goods sold 125,000
Gross margin $325,000
Operating expenses (other than depreciation) $60,000
Depreciation expense 20,000 80,000
Net income $245,000
Changes in current assets (other than cash) and current liabilities during the year were:
Increase Decrease
Accounts receivable $15,000
Merchandise inventory $25,000
Prepaid insurance 8,000
Accounts payable 15,000
Accrued liabilities payable 4,000
Depreciation was the only noncash item affecting net income.
a. Prepare a working paper to calculate cash flows from operating activities under the direct method.
b. Prepare the cash flows from operating activities section of the statement of cash flows under the direct
method.
c. Prove that the same cash flows amount is obtained under the indirect method by preparing the cash flows

from operating activities section of the statement of cash flows under the indirect method. You need not prepare a
working paper.
Alternate problem B The following information relates to Dunwoody Nursery & Garden Center, Inc. The
company leases a building adjacent to its land.
Dunwoody Nursery & Garden Center, Inc.
Comparative Balance Sheets
2011 December 31 and 2010
2011 2010
Assets
Cash $44,500 $ 52,000
Accounts receivable, net 59,000 60,000
Merchandise inventory 175,000 120,000
Equipment 412,500 315,000
Accumulated depreciation – equipment (120,000) (105,000
)
Land 75,000 15,000
Total assets $646,000 $457,000
Liabilities and stockholders' equity
Accounts payable $ 43,750 $40,750
Accrued liabilities payable 2,250 3,750
Capital stock – common - $10 par 375,000 300,000
Paid-in capital in excess of par 150,000 75,000
Retained earnings 75,000 37,500
Total liabilities and stockholders' equity $646,000 $457,000
Net income was USD 97,500 for the year.
Fully depreciated equipment costing USD 15,000 was sold for USD 3,750 (a gain of USD 3,750), and equipment
costing USD 112,500 was purchased for cash.
Depreciation expense for the year was USD 30,000.

Accounting Principles: A Business Perspective 664 A Global Text