The following financial statements were furnished by the Patton Company: In 2020, Patton purchased equipment for $25,000
Question:
The following financial statements were furnished by the Patton Company:
In 2020, Patton purchased equipment for $25,000 and sold some equipment for its book value (i.e., no gain or loss resulted).
Required
a. Prepare a statement of cash flows using the indirect method.
b. Prepare the operating portion of Patton’s cash flow statement using the direct method.
Transcribed Image Text:
Patton Company Balance Sheets As of December 31, 2019, and 2020 2020 2019 Assets Cash $17,000 $15,500 Accounts receivable 6,400 5,800 Inventory Prepaid expenses Plant and equipment Accumulated depreciation 10,000 8,700 2,500 1,340 52,500 42,200 (8,200) (7,200) Total assets $80,200 $66,340 Liabilities and Equity Accounts payable (all relate to inventory purchases) Accrued wages payable $ 6,300 1,650 $ 5,100 1,200 Common stock 37,000 37,000 Retained earnings 35,250 23,040 Total liabilities and equity $80 200 $66,340 Patton Company Income Statement For the Year Ended December 31, 2020 Sales Less cost of goods sold $40,700 (13,200) Gross margin Less wage expense Less other operating expenses Less depreciation expense 27,500 (10,600) (1,130) (3,560) Net income (loss) $12,210
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In order to determine the amount of cash created by operating operations, the indirect technique for preparing the statement of cash flows entails adjusting net income with changes in balance sheet.
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