Attached are the income statement and statement of stockholders' equity for Varney Corp for the year ended 12/31/2014 and the comparative balance sheet information at 12/31/2013 and 12/31/2014.The following additional information is provided:

1. During 2014 Varney purchased land and a building through a $200,000 cash purchase. There were no disposals of operating assets during 2014.The building is the only depreciable operating asset that Varney owned during 2014
2. During 2014, Varney issued 5,000 shares of its own common stock for $50,000
3. During 2014, Varney repurchased 2,000 shares of its own common stock for $18,000
4. The other operating expenses were paid in full during 2014
5. During 2014, $2,000 of dividends were paid to stockholders
6. An equity statement is not shown because all relevant information to the statement of cash flows has been provided

Required:

Statement of cash flows for Varney Corp. for the year ended 12/31/2014 using the "indirect" method of presenting operating cash flows.

Chapter Ten Example Problem - SOLUTIONS ACCTG305 Corp. Statement of Cash Flows - Indirect Method Year Ended 12/31/2013 Cash Flow from Operating Activities: Net Income Addition Adjustments: Depreciation Expense Loss on Sale of Real Estate Investment Decrease in Accounts Receivable Decrease in Inventory Increase in Salaries & Wages Payable Increase in Interest Payable Subtraction Adjustments: Decrease in Accounts Payable Decrease in Income Taxes Payable Cash Flow from Investing Activities: Cash Received from sale of Real Estate Investment Cash Paid for Operating Assets Cash Flow from Financing Activities: Cash Received from Issuance of Note Payable Cash Paid for Dividends Net Cash Flow 2013 $ 300,000 $ 70,000 100,000 20,000 10,000 10,000 5,000 215,000 20,000 15,000 $ 480,000 $ 110,000 $ 50,000 Cash at 12/31/2012 Cash at 12/31/2013 $ 160,000 60,000 $ 220,000 ACCTG305 Corp. Statement of Cash Flows - Direct Method Year Ended 12/31/2013 Cash Flow from Operating Activities: Collected from Customers Collected in rent from tenants Paid to Suppliers for Inventory Paid to Employees for Salaries and Wages Interest Paid Income Tax Paid Cash Flow from Investing Activities: Cash Received from sale of Real Estate Investment Cash Paid for Operating Assets Cash Flow from Financing Activities: Cash Received from Issuance of Note Payable Cash Paid for Dividends Net Cash Flow 2013 Cash at 12/31/2012 Cash at 12/31/2013 $ 1,810,000 60,000 $ 910,000 210,000 55,000 215,000 $1,870,000 $ 480,000 $ 110,000 $ 50,000 $ 160,000 60,000 $ 220,000 Solution Notes: A. Answers to this part are shown on the cash flow statements (investing and financing activities sections) B. Cash Flow Calculations for Direct Method Cash Collected from Customers Revenue Plus: Decrease in Accts Receivable 1,790,000 20,000 (More cash collected than recognized as revenue, AR decrease when cash is collected and increases when revenue recognized but no cash collected) Cash Collected from Customers 1,810,000 Cash collected for rent No change in related unearned rent account, cash flow = revenue For Cash payment amounts, everything is in terms of outflows - do changes in related accounts increase or decrease outflows relative to expenses. That is different from the indirect method where everything is in terms of net income Cash Paid to Suppliers of Inventory o Adjustment comes from two related accounts, Accounts Payable and Inventory, one related to the cost purchased of inventory and the other relating to inventory sales Cost of Goods Sold Add: Decrease in Accounts Payable 900,000 20,000 (Reduction means more paid for than purchased this period - cash flow greater than amount purchased) Less: Decrease in Inventory ( 10,000) (Reduction in inventory means more inventory was sold than purchased this period - cash outflow would be reduced) Cash Paid to Suppliers of Inventory 910,000 Cash Paid to Employees for Salaries and Wages Salary and Wage Expense Less: Increase in Salaries & Wages Payable 220,000 (10,000) (Increase - less paid than recognized as expense) Cash Paid to Employees for Salaries and Wages 210,000 Interest & Tax Paid Interest Expense Less: Increase in Interest Payable 60,000 ( 5,000) (Increase - Less paid than recognized as expense) Interest Paid Income Tax Expense Less: Decrease in Income Tax Payable 55,000 200,000 15,000 (Decrease - more recognized as expense than paid) Income Tax Paid 215,000 Depreciation doesn't appear on the direct method statement - it is a non-cash expense Chapter 10 Homework Financial Statements Varney Corp. Income Statement Year Ended 12/31/2014 Revenues and Gains: Sales Revenue $1,118,000 Expenses and Losses: Cost of Goods Sold Salaries and Wages Expense Rent Expense Depreciation Expense Other Operating Expenses Interest Expense Net Income $ 614.600 206,800 9,000 4,000 123,180 2,000 963,580 $ 158,420 Varney Corp. Comparative Balance Sheet Information 12/31/2013 & 12/31/2014 Assets: Cash Accounts Receivable Inventory Prepaid Rent Operating Assets (Net) Total Assets Liabilities and Stockholders' Equity: Accounts Payable Salaries & Wages Payable Interest Payable Notes Payable Paid-in Capital Retained Earnings Treasury Stock Total Liabilities & Stockholders' Equity 12/31/2013 $ 85,800 73,500 40,000 3,000 0 $202,300 12/31/2014 $136,900 115,520 15,400 0 196,000 $463,820 Change $ +51,100 +42,020 - 24,600 -3,000 +196,000 $+261,520 $ 51,500 900 500 50,000 75,000 24,400 0 $202,300 $120,000 6,000 0 50,000 125,000 180,820 (18,000) $463,820 $ +68,500 + 5,100 500 0 +50,000 +156,420 -18,000 $+261,520