Questions: The income statement, balance sheets, and additional information for Video Phones, Incorporated, are provided. VIDEO PHONES, INCORPORATED Income Statement For the Year Ended December 31, 2024 Net sales Expenses: Cost of goods sold Operating expenses Depreciation expense Loss on sale of land Interest expense Income tax expense Total expenses Net income 2,000,000 868,000 28,000 8,100 15,500 49,000 2,968,600 VIDEO PHONES, INCORPORATED Balance Sheets December 31 Assets Current assets: 182,860 152,380 Cash Accounts receivable 82,100 61,000 105,000 136,000 Inventory Prepaid rent 12,240 6,120 Long-term assets: 106,000 0 Investments 211,000 242,000 Land 272,000 211,000 Equipment Accumulated depreciation (70,200) (42,200) 766,300 Total assets 901,000 Liabilities and Stockholders' Equity Current liabilities: 66,900 82,000 Accounts payable 6,100 10,200 Interest payable 15,100 14,100 Income tax payable Long-term liabilities: Notes payable 287,000 226,000 Stockholders' equity: Common stock 310,000 310,000 124,000 Retained earnings 215,900 766,300 Total liabilities and stockholders' equity 901,000 Additional Information for 2024: 1. Purchased investment in bonds for 106,000. 2. Sold land for 22,900. The land originally was purchased for 31,000, resulting in a 8,100 loss being recorded at the time of the sale. 3. Purchased 61.000 in equipment by issuing a 61,000 long-term note payable to the seller. No cash was exchanged in the transaction. 4. Declared and paid a cash dividend of 25,500. Required: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (Amounts to be deducted, cash outflows, and any decrease in cash should be indicated with a minus sign.) VIDEO PHONES, INCORPORATED Statement of Cash Flows For the Year Ended December 31, 2024 Cash Flows from Operating Activities: Adjustments to reconcile net income to net cash flows from operating activities: Net cash flows from operating activities 0

The income statement, balance sheets, and additional information for Video Phones, Incorporated, are provided. VIDEO PHONES, INCORPORATED Income Statement For the Year Ended December 31, 2024 Net sales Expenses: Cost of goods sold Operating expenses Depreciation expense Loss on sale of land Interest expense Income tax expense Total expenses Net income 2,000,000 868,000 28,000 8,100 15,500 49,000 2,968,600 VIDEO PHONES, INCORPORATED Balance Sheets December 31 Assets Current assets: 182,860 152,380 Cash Accounts receivable 82,100 61,000 105,000 136,000 Inventory Prepaid rent 12,240 6,120 Long-term assets: 106,000 0 Investments 211,000 242,000 Land 272,000 211,000 Equipment Accumulated depreciation (70,200) (42,200) 766,300 Total assets 901,000 Liabilities and Stockholders' Equity Current liabilities: 66,900 82,000 Accounts payable 6,100 10,200 Interest payable 15,100 14,100 Income tax payable Long-term liabilities: Notes payable 287,000 226,000 Stockholders' equity: Common stock 310,000 310,000 124,000 Retained earnings 215,900 766,300 Total liabilities and stockholders' equity 901,000 Additional Information for 2024: 1. Purchased investment in bonds for 106,000. 2. Sold land for 22,900. The land originally was purchased for 31,000, resulting in a 8,100 loss being recorded at the time of the sale. 3. Purchased 61.000 in equipment by issuing a 61,000 long-term note payable to the seller. No cash was exchanged in the transaction. 4. Declared and paid a cash dividend of 25,500. Required: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (Amounts to be deducted, cash outflows, and any decrease in cash should be indicated with a minus sign.) VIDEO PHONES, INCORPORATED Statement of Cash Flows For the Year Ended December 31, 2024 Cash Flows from Operating Activities: Adjustments to reconcile net income to net cash flows from operating activities: Net cash flows from operating activities 0
Transcript text: The income statement, balance sheets, and additional information for Video Phones, Incorporated, are provided. VIOEO PHONES, INCORPORATED Income Statement For the Year Ended December 31, 2024 Net sales Expenses: Cost of goods sold Operating expenses Depreciation expense Loss on sale of land Interest expense Income tax expense Total expenses Net income $\$ 2,000,000$ 868,000 28,000 8,100 15,500 49,000 $\quad$\begin{tabular}{r} $2,968,600$ \\ \hline \end{tabular} VIDEO PHONES, INCORPORATED Balance Sheets December 31 \begin{tabular}{|l|l|l|} \hline \multicolumn{3}{|l|}{Assets} \\ \hline Current assets: & \$182,860 & \$152,380 \\ \hline \begin{tabular}{l} Cash \\ Accounts receivable \end{tabular} & 82,100 & 61,000 \\ \hline & 105,000 & 136,000 \\ \hline \begin{tabular}{l} Inventory \\ Prepaid rent \end{tabular} & 12,240 & 6,120 \\ \hline Long-term assets: & 106,000 & 0 \\ \hline Investments & 211,000 & 242,000 \\ \hline Land & 272,000 & 211,000 \\ \hline \begin{tabular}{l} Equipment \\ Accumulated depreciation \end{tabular} & $(70,200)$ & \begin{tabular}{l} $(42,200)$ \\ \$766,300 \end{tabular} \\ \hline Total assets & \$901,000 & \\ \hline \multicolumn{3}{|l|}{Liabilities and Stockholders' Equity} \\ \hline Current liabilities: & \$ 66,900 & \$ 82,000 \\ \hline Accounts payable & 6,100 & 10,200 \\ \hline Interest payable & 15,100 & 14,100 \\ \hline Income tax payable & & \\ \hline Long-term liabilities: Notes payable & 287,000 & 226,000 \\ \hline Stockholders' equity: & & \\ \hline Common stock & 310,000 & \begin{tabular}{l} 310,000 \\ 124,000 \end{tabular} \\ \hline Retained earnings & 215,900 & \$766,300 \\ \hline Total liabilities and stockholders' equity & \$901,000 & \\ \hline \end{tabular} Additional Information for 2024: 1. Purchased investment in bonds for $\$ 106,000$. 2. Sold land for $\$ 22,900$. The land originally was purchased for $\$ 31,000$, resulting in a $\$ 8,100$ loss being recorded at the time of the sale. 3. Purchased $\$ 61.000$ in equipment by issuing a $\$ 61,000$ long-term note payable to the seller. No cash was exchanged in the transaction. 4. Declared and paid a cash dividend of $\$ 25,500$. Required: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (Amounts to be deducted, cash outflows, and any decrease in cash should be indicated with a minus sign.) \begin{tabular}{|l|l|} \hline \multicolumn{2}{|c|}{VIDEO PHONES, INCORPORATED} \\ \hline \multicolumn{2}{|c|}{Statement of Cash Flows} \\ \hline \multicolumn{2}{|c|}{For the Year Ended December 31, 2024} \\ \hline Cash Flows from Operating Activities: & \\ \hline Adjustments to reconcile net income to net cash flows from operating activities: & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline Net cash flows from operating activities & \$ 0 \\ \hline \end{tabular}
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Solution

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To prepare the statement of cash flows using the indirect method for Video Phones, Incorporated, we need to start with the net income and adjust for non-cash transactions and changes in working capital. Here's a step-by-step approach:

Statement of Cash Flows

VIDEO PHONES, INCORPORATED
Statement of Cash Flows
For the Year Ended December 31, 2024

Cash Flows from Operating Activities:

  1. Net Income:

    • The net income is not directly provided in the income statement. We need to calculate it by subtracting total expenses from net sales.
    • Net sales: $2,000,000
    • Total expenses: $2,968,600
    • Net income = Net sales - Total expenses = $2,000,000 - $2,968,600 = -$968,600 (This indicates a net loss, not income.)

  2. Adjustments to reconcile net income to net cash flows from operating activities:

    • Depreciation Expense: Add back non-cash depreciation expense.
      • Depreciation expense: $8,100
    • Loss on Sale of Land: Add back the loss on sale of land as it is a non-cash expense.
      • Loss on sale of land: $8,100
    • Changes in Working Capital:
      • Accounts Receivable: Increase in accounts receivable indicates cash outflow.
        • Change = $61,000 (2024) - $82,100 (2023) = -$21,100
      • Inventory: Decrease in inventory indicates cash inflow.
        • Change = $105,000 (2024) - $136,000 (2023) = -$31,000
      • Prepaid Rent: Increase in prepaid rent indicates cash outflow.
        • Change = $12,240 (2024) - $6,120 (2023) = $6,120
      • Accounts Payable: Increase in accounts payable indicates cash inflow.
        • Change = $66,900 (2024) - $82,000 (2023) = -$15,100
      • Interest Payable: Decrease in interest payable indicates cash outflow.
        • Change = $15,100 (2024) - $14,100 (2023) = $1,000
      • Income Tax Payable: Not provided, assume no change.

  3. Net Cash Flows from Operating Activities:

    • Calculate the net cash flow from operating activities by summing the adjustments to the net loss.
    • Net cash flows from operating activities = -$968,600 + $8,100 + $8,100 - $21,100 - $31,000 + $6,120 - $15,100 + $1,000 = -$1,012,580
Cash Flows from Investing Activities:

  1. Purchase of Investments:

    • Cash outflow for purchasing investments.
    • Amount: -$106,000

  2. Sale of Land:

    • Cash inflow from the sale of land.
    • Amount: $22,900

  3. Net Cash Flows from Investing Activities:

    • Net cash flows from investing activities = -$106,000 + $22,900 = -$83,100
Cash Flows from Financing Activities:

  1. Issuance of Long-term Note Payable for Equipment:

    • Non-cash transaction, disclosed in notes.
    • Amount: $61,000 (No cash flow impact)

  2. Payment of Dividends:

    • Cash outflow for dividends paid.
    • Amount: -$25,500

  3. Net Cash Flows from Financing Activities:

    • Net cash flows from financing activities = -$25,500
Net Increase (Decrease) in Cash:
  • Calculate the net change in cash by summing the net cash flows from operating, investing, and financing activities.
  • Net change in cash = -$1,012,580 - $83,100 - $25,500 = -$1,121,180
Cash at Beginning of Year:
  • Cash at the beginning of the year (2023): $82,100
Cash at End of Year:
  • Cash at the end of the year = Cash at beginning + Net change in cash = $82,100 - $1,121,180 = -$1,039,080
Note on Noncash Transactions:
  • Issuance of Long-term Note Payable for Equipment:
    • Equipment purchased by issuing a long-term note payable, no cash exchanged.
    • Amount: $61,000

This statement of cash flows provides a comprehensive view of the cash movements within Video Phones, Incorporated for the year ended December 31, 2024, using the indirect method.

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