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1. New equipment costing $85,000 was purchased for cash during the year. 2. Old equipment having an original cost of $57,500 was sold for $1,500 cash. 3. Bonds matured and were paid off at face value for cash. 4. A cash dividend of $40,350 was declared and paid during the year. Prepare a statement of cash flows using the indirect method.

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Answer:

Cash flow from Operating Activities

Loss on Sale of Equipment ($57,500 - $1,500)       $56,000

Net Cash flow from Operating Activities                  $56,000

Cash flow from Investing Activities

Purchase of New Equipment                                  - $85,000

Proceeds from Sale of Equipment                              $1,500

Net Cash flow from Investing Activities                 - $83,500

Cash flow from Financing Activities

Dividend Paid                                                          - $40,350

Net Cash flow from Financing Activities                - $40,350

Explanation:

The Indirect method, reconciles the Net Income or Operating Profit to Cash flow from Operating Activities by adjusting the following items : (1) Non-Cash items previously added or deducted from Operating Profit and (2) Changes to Working Capital items that need to be adjusted on the Operating Profit.

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