Little Statement of Cash Flows

Question 1

Condensed financial data of Pat Metheny Company for 2025 and 2024 are presented in the image.

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2025.

Prepare a statement of cash flows using the indirect method.

Answer 1

OPERATING ACTIVTIES:

• Net Income ($810):
  Direct from income statement.
• Depreciation Expense ($30):
  Accum. Depr. change = ($1,200 – $1,170).
• Gain on Sale of Investments (-$80):
  From “Other revenues and gains” in income statement.
• Decrease in Inventory ($300):
  Inventory down from $1,900 → $1,600.
• Increase in Accounts Payable ($300):
  A/P up from $900 → $1,200.
• Increase in Accounts Receivable (-$450):
  Receivables up from $1,300 → $1,750.
• Decrease in Accrued Liabilities (-$50):
  Accrued Liabilities down from $250 → $200.
• Net cash from operations ($860):
  Sum of all above adjustments.

INVESTING ACTIVITIES:

• Sale of Investments ($200):
  ($1,420 - $1,300) + $80 gain = $200 cash received.
• Purchase of Plant Assets (-$130):
  ($1,900 - $1,700) – $70 noncash issuance = $130 cash purchase.
• Net cash from investing ($70):
  $200 inflow – $130 outflow.

FINANCING ACTIVITIES:

• Issuance of Common Stock ($130):
  ($1,900 - $1,700) – $70 noncash = $130 cash inflow.
• Redemption of Bonds (-$150):
  Bonds Payable down from $1,550 → $1,400.
• Payment of Dividends (-$260):
  Direct from income statement cash dividend amount.
• Net cash used in financing (-$280):
  Sum of above.

SUMMARY:

• Net Increase in Cash ($650):
  $860 + $70 – $280 = $650.
• Beginning Cash ($1,150):
  From 2024 balance sheet.
• Ending Cash ($1,800):
  Matches 2025 balance sheet.
• Issuance of Common Stock for Plant Assets ($70):
  Directly stated in additional info.