ICE Drilling Inc.

Income Statement

For Year Ended December 31, 2017

Sales $ 1,111,600

Cost of goods sold 560,000

Gross profit $ 551,600

Operating expenses:

Depreciation expense $ 42,000

Other expenses 305,760

Total operating expenses 347,760

Profit from operations 203,840

Loss on sale of equipment 11,480

Profit before taxes $ 192,360

Income taxes 27,160

Profit $ 165,200

ICE Drilling Inc.

Comparative Balance Sheet Information

December 31

2017 2016

Cash $ 120,680 $ 171,640

Accounts receivable 145,600 111,160

Merchandise inventory 613,200 565,600

Prepaid expenses 12,040 14,000

Equipment 357,280 246,400

Accumulated depreciation 77,560 98,560

Accounts payable 197,400 261,240

Current notes payable 22,400 14,000

Notes payable 210,000 120,400

Common shares 450,800 350,000

Retained earnings 290,640 264,600

Additional information regarding ICE Drillings activities during 2017:

1. Loss on sale of equipment is $11,480.

2. Paid $70,280 to reduce a long-term note payable.

3. Equipment costing $105,000, with accumulated depreciation of $63,000, is sold for cash.

4. Equipment costing $215,880 is purchased by paying cash of $56,000 and signing a long-term note payable for the balance.

5. Borrowed $8,400 by signing a short-term note payable.

6. Issued 5,600 common shares for cash at $18 per share.

7. Declared and paid cash dividends of $139,160.

Required:

Prepare a statement of cash flows for 2017 that reports the cash inflows and outflows from operating activities according to the indirect method. (List any deduction in cash and cash outflows as negative amounts.)

Analysis Component:

Merchandise Inventory, Prepaid Expenses, Notes Payable, and Common Shares are some of the accounts that changed during 2017. Indicate what transactions likely caused each of these accounts to increase and/or decrease. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

Merchandise inventory:

increases caused by the purchase of merchandise

decreases caused by the purchase of merchandise

decreases caused by the sale of merchandise

increases caused by the sale of merchandise

Prepaid expenses:

increases caused by the purchase of prepaid items, i.e., such as the payment of rent or insurance in advance

decreases caused by the use of prepaid expenses

decreases caused by the purchase of prepaid items, i.e., such as the payment of rent or insurance in advance

increases caused by the use of prepaid expenses

Notes payable:

increases caused by the issuance of debt (borrowing)

decreases caused by principal payments

decreases caused by the issuance of debt (borrowing)

increases caused by principal payments

Common shares:

increases caused by the issuance of shares and/or share dividends

decreases caused by the repurchase and/or cancellation of shares

decreases caused by the issuance of shares and/or share dividends

increases caused by the repurchase and/or cancellation of shares