Financial Accounting: An Integrated Statements Approach, 2nd Edition

The comparative balance sheet of Dowling Company for December 31, 2007 and 2006, is shown

below.

An examination of the accounting records revealed the following additional information

applicable to 2007:

a. Land costing $15,000 was sold for $15,000.

b. A mortgage note was issued for $40,000.

c. A building costing $115,000 was constructed.

d. 2,500 shares of common stock were issued at 40 in exchange for the bonds payable.

e. Cash dividends declared were $74,670.

Instructions

1. Prepare a statement of cash flows, using the indirect method of reporting cash flows from
   operating activities.


2. Prepare a statement of cash flows, using the direct method of reporting cash flows from
   operating activities.

600 Chapter 13 Statement of Cash Flows

ILLUSTRATIVE ACCOUNTING APPLICATION PROBLEM

2007 2006

Assets

Cash $ 140,350 $ 95,900

Accounts receivable (net) 95,300 102,300

Inventories 165,200 157,900

Prepaid expenses 6,240 5,860

Investments (long-term) 35,700 84,700

Land 75,000 90,000

Buildings 375,000 260,000

Accumulated depreciation—buildings (71,300) (58,300)

Machinery and equipment 428,300 428,300

Accumulated depreciation—machinery and

equipment (148,500) (138,000)

Patents 58,000 65,000

Total assets $1,159,290 $1,093,660

Liabilities and Stockholders’ Equity

Accounts payable (merchandise creditors) $ 43,500 $ 46,700

Accrued expenses (operating expenses) 14,000 12,500

Income taxes payable 7,900 8,400

Dividends payable 14,000 10,000

Mortgage note payable, due 2020 40,000 0

Bonds payable 150,000 250,000

Common stock, $30 par 450,000 375,000

Excess of issue price over par—common stock 66,250 41,250

Retained earnings 373,640 349,810

Total liabilities and stockholders’ equity $1,159,290 $1,093,660

Dowling Company

Comparative Balance Sheet

December 31, 2007 and 2006

The income statement for Dowling Company is shown at the top of the following page.