Financial Accounting: An Integrated Statements Approach, 2nd Edition

Rundell Inc.

Statement of Cash Flows

For the Year Ended December 31, 2007

Cash flows from operating activities:

Net income $108,000

Add: Depreciation $ 7,000

Decrease in inventories 8,000

Increase in accrued expenses 2,200 17,200

$125,200

Deduct: Increase in accounts receivable $ 9,000

Decrease in accounts payable 3,200

Decrease in income taxes payable 500

Gain on sale of land 12,000 24,700

Net cash flow from operating activities $100,500

Cash flows from investing activities:

Cash from sale of land $ 72,000

Less: Cash paid to purchase land $15,000

Cash paid for purchase of building 60,000 75,000

Net cash flow used for investing activities (3,000)

Cash flows from financing activities:

Cash received from sale of common stock $ 48,000

Less: Cash paid to retire bonds payable $50,000

Cash paid for dividends 24,000 74,000

Net cash flow used for financing activities (26,000)

Increase in cash $ 71,500

Cash at the beginning of the year 26,000

Cash at the end of the year $ 97,500

Chapter 13 Statement of Cash Flows 591

Preparing the Statement of Cash Flows

The statement of cash flows for Rundell Inc. is prepared from the data assembled and

analyzed above, using the indirect method. Exhibit 6 shows the statement of cash flows

prepared by Rundell Inc. The statement indicates that the cash position increased by

$71,500 during the year. The most significant increase in net cash flows, $100,500, was

from operating activities. The most significant use of cash, $26,000, was for financing

activities.

STATEMENT OF CASH FLOWS—THE DIRECT

METHOD

As we discussed previously, the manner of reporting cash flows from investing and fi-

nancing activities is the same under the direct and indirect methods. In addition, the

direct method and the indirect method will report the same amount of cash flows from

operating activities. However, the methods differ in how the cash flows from operat-

ing activities data are obtained, analyzed, and reported.

Exhibit 6

Statement of Cash

Flows—Indirect Method

Prepare a statement of
cash flows, using the
direct method.

3