Chapter 12: Statement of Cash Flows Problem
Condensed financial data used to prepare the Statement of Cash Flows is as follows:

ARMA COMPANY
Balance Sheet
December 31, 2011

Assets: 2011 2010 Acct change
Cash $ 90,800 $ 48,400
Accounts receivable 92,800 33,000 Incr $59,800 subtract (-)
Inventories 112,500 102,850 Incr $9,650 subtract (-)
Prepaid Expenses 28,400 26,000 Incr $2,400 subtract (-)
Investments 138,000 114,000 Incr $24,000
Plant assets 270,000 242,500 Incr $27,500
Less: Accumulated depreciation (50,000) (52,000) Decr $2,000
Total $ 682,500 $ 514,750

Liabilities and Stockholders’ Equity:
Accounts Payable $ 112,000 $ 67,300 Incr $44,700 add (+)
Accrued expenses payable 16,500 17,000 Decr $500 subtract (-)
Bonds payable 110,000 150,000 Decr $40,000
Common stock 220,000 175,000 Incr $45,000
Retained Earnings 224,000 105,450 Incr $118,550
Total $ 682,500 $ 514,750

ARMA COMPANY
Income Statement
For the Year ended December 31, 2011

Sales $ 392,780 Less: Cost of goods sold $ 135,460 Operating expenses 58,910 Income taxes 27,280 Interest expense 4,730 Loss on sale of plant assets 7,500 233,880 Net Income $ 158,900

Additional information:
1. Old plant assets with an original cost of $57,500 and accumulated depreciation of $48,500 were sold for $1,500 cash.
2. Depreciation expense is included in Operating expenses on the income statement.
3. Maturing bonds were retired at face value.
4. A cash dividend was declared and paid during the year.
Solution – Indirect Method:

ARMA COMPANY
Statement of Cash Flows
For the Year ended December 31, 2011

Operating activities: Net