Preparing statement of cash flows LO P1, P2, P3

MONTGOMERY INC.
Comparative Balance Sheets
December 31, 2018 and 2017
2018 2017
Assets
Cash $ 31,000 $ 31,200
Accounts receivable, net 10,300 12,600
Inventory 92,400 72,800
Total current assets 133,700 116,600
Equipment 51,200 43,100
Accum. depreciation—Equipment (23,100) (16,000)
Total assets $ 161,800 $ 143,700
Liabilities and Equity
Accounts payable $ 24,600 $ 26,600
Salaries payable 500 600
Total current liabilities 25,100 27,200
Equity
Common stock, no par value 112,800 103,400
Retained earnings 23,900 13,100
Total liabilities and equity $ 161,800 $ 143,700

MONTGOMERY INC.
Income Statement
For Year Ended December 31, 2018
Sales $ 45,900
Cost of goods sold (19,100)
Gross profit 26,800
Operating expenses
Depreciation expense $ 7,100
Other expenses 5,500
Total operating expense 12,600
Income before taxes 14,200
Income tax expense 3,400
Net income $ 10,800

Additional Information

No dividends are declared or paid in 2018.
Issued additional stock for $9,400 cash in 2018.
Purchased equipment for cash in 2018; no equipment was sold in 2018.

Use the above financial statements and additional information to prepare a statement of cash flows for the year ended December 31, 2018, using the indirect method.

Answer and explanation:

Check the attached file for a well formatted answer

MONTGOMERY INC.

Cash Flow Statement

For year ended 31st December 2018

A. Cash Flows from Operating Activity  

Net Income  $      10,800.00

Adjustments to reconcile net income to net cash flow from operating activities:  

Depreciation expense$          7,100.00  

Changes in current operating assets and liabilities:  

Decrease in Accounts receivables$          2,300.00  

Increase in Inventory$     (19,600.00)  

Decrease in salaries payable$           (100.00)  

Decrease in Accounts payable$       (2,000.00)  

$    (12,300.00)

Net cash flow from Operating activities  $      (1,500.00)

B. Cash flows from Investing Activities  

Purchase of Equipment$       (8,100.00)  

Net cash flow used for investing activities  $      (8,100.00)

C. Cash Flows from Financing activities  

Issue of Common stock$          9,400.00  

Cash flows from Financing activities  $         9,400.00

Net Increase (Decrease) in Cash [A+B+C]  $          (200.00)

Cash at the beginning  $      31,200.00

Cash at the end  $      31,000.00

.General notes for cash flow

Cash is increased when Current liability increase or Current asset Decrease.

Cash is Decreased when Current liability Decrease or Current asset Increase.

Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash

Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.

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