8. On the basis of the following data for Branch Co. for the current and preceding years ended December 31, prepare a statement of cash flows using the indirect method. Assume that equipment costing $125,000 was purchased for cash and the land was sold for $15,000. The stock was issued for cash and the only entries in the retained earnings account were for net income of $56,000 and cash dividends declared and paid of $18,000.

The cash flows statement is shown below:

Explanation:

Branch Company

Cash Flows Statement

For the Year Ended on December 31

Cash Flows for Operating Activities:

Net income   $56,000

Items to reconcile net income to cash flows for operating activities

Depreciation expense   $57,000

Loss on sale of land    $5,000

Decrease in accounts receivable     $7,000

Increase in inventories       ($16,500)

Decrease in accounts payable   ($1,500)

Net cash flows for operating activities      $107,000

Cash Flows for Investing Activities:

Cash paid for equipment purchased   ($125,000)

Cash received for land sold     $15,000

Net cash flows for investing activities    ($110,000)

Cash Flows from Financing Activities:

Cash received for common stock issued  $32,000

Cash paid for dividends  ($18,000)

Net cash flows for financing activities    $14,000

Net Increase in Cash                 $11,000   ($107,000 + $14,000 - $110,000)

Cash balance - January 1           $54,000

Cash balance - December 31    $65,000

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