Question 1

Preparing a Statement of Cash FlowsIndirect Method

Sterling Corporations recent comparative balance sheet and income statement follow.

Balance Sheets, December 31	2019	2020	Difference
Assets
Cash and cash equivalents	$ 34,000	$ 33,500	$ (500)
Accounts receivable (net)	12,000	17,000	5,000
Inventory	16,000	14,000	(2,000)
Investment, long-term	6,000	0	(6,000)
Fixed assets	80,000	98,000	18,000
Accumulated depreciation	(48,000)	(39,000)	9,000
Total assets	$100,000	$123,500	$23,500
Liabilities and Stockholders Equity
Accounts payable	$19,000	$12,000	$(7,000)
Bonds payable	10,000	30,000	20,000
Common stock, no-par	50,000	65,000	15,000
Retained earnings	21,000	28,000	7,000
Treasury stock	0	(11,500)	(11,500)
Total liabilities and stockholders equity	$100,000	$123,500	$23,500

Income Statement, For Year Ended December 31	2020
Sales revenue	$70,000
Cost of goods sold	(42,000)
Gross margin	28,000
Depreciation expense	(5,000)
Other operating expenses	(18,000)
Gain on sale of investments	3,000
Loss on sale of fixed assets	(1,000)
Net income	$7,000

Analysis of selected accounts and transactions

1. Sold fixed assets for cash; cost, $21,000, and two-thirds depreciated.

2. Purchased fixed assets for cash, $9,000.

3. Purchased fixed assets; exchanged unissued bonds of $30,000 (face value and fair value) in payment.

4. Sold the long-term investments for cash. Assume carrying value of the investment is equal to its original purchase price.

5. Purchased treasury stock for cash, $11,500.

6. Retired bonds payable at maturity date by issuing common stock, $10,000.

7. Sold unissued common stock for cash, $5,000.

Required

Prepare the statement of cash flows for Sterling Corporation for the year ended December 31, 2020, assuming the indirect method in presenting cash flows from operating activities.

Statement of Cash Flows For the Year Ended December 31, 2020
Cash flows from operating activities
Net income	Answer
Adjustments:
Depreciation expense	Answer
Gain on sale of long-term investments	Answer
AnswerCost of goods soldDecrease in accumulated depreciationDecrease in retained earningsGain on sale of fixed assetsIncrease in bonds payableLoss on sale of fixed assetsLoss on sale of long-term investmentsPurchase of fixed assetsPurchase of fixed assets by issuing bondsPurchase of treasury stock	Answer
Increase in accounts receivable, net	Answer
Decrease in inventory	Answer
Decrease in accounts payable	Answer
Net cash provided (used) by operating activities	Answer
Cash flows from investing activities
Sale of fixed assets	Answer
AnswerCost of goods soldDecrease in accumulated depreciationDecrease in retained earningsGain on sale of fixed assetsIncrease in bonds payableLoss on sale of fixed assetsLoss on sale of long-term investmentsPurchase of fixed assetsPurchase of fixed assets by issuing bondsPurchase of treasury stock	Answer
Sale of long-term investment	Answer
Net cash provided (used) by investing activities	Answer
Cash flows from financing activities
Issue common stock	Answer
AnswerCost of goods soldDecrease in accumulated depreciationDecrease in retained earningsGain on sale of fixed assetsIncrease in bonds payableLoss on sale of fixed assetsLoss on sale of long-term investmentsPurchase of fixed assetsPurchase of fixed assets by issuing bondsPurchase of treasury stock	Answer
Net cash provided (used) by financing activities	Answer
Net increase in cash and cash equivalents during 2020	Answer
Cash and cash equivalents, January 1, 2020	Answer
Cash and cash equivalents, December 31, 2020	Answer
Noncash Disclosure
AnswerCost of goods soldDecrease in accumulated depreciationDecrease in retained earningsGain on sale of fixed assetsIncrease in bonds payableLoss on sale of fixed assetsLoss on sale of long-term investmentsPurchase of fixed assetsPurchase of fixed assets by issuing bondsPurchase of treasury stock	Answer
Retired bonds payable with common stock	Answer