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Problem 20-4 Preparing statement of cash flows under indirect method (LO 20-1, LO 20-2, LO 20-3, LO 20-4) 20x0 Neighborhood Supermarkets is preparing to go public, and you are asked to assist the firm by preparing its statement of cash flows for 20X1. Neighborhood's balance sheets at December 31, 20x0, and December 31, 20X1, and its income statement for the year ending December 31, 20X1, appear below. , , Neighborhood Supermarkets, Inc. Balance Sheet December 31, ($ in thousands) 20x1 Assets Current: Cash $ 91,000 $ 59,351 Marketable securities 18,147 20,068 Accounts receivable, net 52,478 45,318 Inventories 228,515 187,433 Prepaid expenses 6,254 5,085 Total current assets 396,394 317,255 Property and equipment: Land 86,193 86,003 Buildings and improvements 417,954 417,954 Equipment 673, 570 646,427 Leasehold improvements 139,418 136,589 Accumulated depreciation (815,060) (775,860) Total property and equipment 502,075 511,113 Goodwill 35, 162 15,722 Intangibles and other 3,843 4,124 Total assets $ 937,474 $ 848,214 Liabilities Current: Accounts payable $ 127,865 $ 95, 128 Accrued expenses 30,227 28,173 Accrued self-insurance 21,998 23,344 Deferred revenue 6,731 6,920 Income taxes payable 484 738 Total current liabilities 187,305 154,303 Noncurrenti Notes payable 25,000 Postretirement benefit obligations 12,454 12,454 Deferred income taxes 22,544 20,357 Total noncurrent liabilities 59,998 Total liabilities 247, 303 187,114 Stockholders' Equity Common stock 9,949 9,949 32,811 Retained earnings Accumulated other comprehensive income Treasury stock (at cost) Total stockholders' equity Total liabilities and stockholders' equity 826,473 4,604 (150, 855) 690, 171 $ 937,474 795,473 4,560 (148,882 661,100 $ 848,214 Neighborhood Supermarkets, Inc. Income Statement for the Year Ended December 31, 20x1 ($ in thousands) Net sales $2,516,364 Cost of sales 1,837,657 Gross profit 678, 707 Depreciation expense (47,201) Amortization expense (6,207) Self-insurance expenses (43,000) Loss on sale of equipment (60) Operating, general, and administrative expenses (486,665) Income from operations 95, 574 Gain on sale of marketable securities 208 Investment income 1,556 Income before provision for income taxes 97,338 Provision for income taxes (24,335) Net income $ 73,003 Additional Information: a. The only entries in retained earnings for 20X1 were for net income and cash dividends. b. During 20x1, bad debt expenses of $906 were included in operating, general, and administrative expenses; no accounts were written off. c. Adjusting marketable securities upward by $68 led to the increase of $44 in accumulated other comprehensive income, after considering the deferred tax effect of $24. d. On July 1, 20x1, Neighborhood Supermarkets bought land ($190) and equipment ($20,000), paying $10,190 in cash and issuing a $10,000 five-year note payable with interest at 6% payable annually. Accrued interest on the note was included in operating, general, and administrative expenses because the amount was deemed too immaterial to report separately. e. No treasury stock was reissued during 20X1. f. Equipment costing $9,052 with a book value of $1,051 was sold for cash. g. A much smaller competitor was acquired on December 31, 20x1, for $34,890 cash and a 7%, $15,000 note that matures in two years. Neighborhood allocated the acquisition cost as follows: inventory, $5,500; intangibles, $5,926; equipment, $16,195; leasehold improvements, $2,829; goodwill, $19,440. Required: Use the indirect method to prepare Neighborhood Supermarkets' statement of cash flows for 20X1. (Hint Use the worksheet approach from the Chapter 4 appendix in vour calculations.) (Enter your answers in thousands of dollars. Amounts to be deducted should be $ 73,003 47,201 6,207 60 (208) Cash Flow Statement For the Year Ended December 31, 20X1 Net income Depreciation Amortization Loss on equipment sale Gain on marketable securities sale Change in deferred taxes Change in accounts receivable Change in inventories Change in prepaid expenses Change in accounts payable Change in accrued expenses Change in accrued self-insurance Change in deferred revenue Change in taxes payable (7,160) (1,169) 32,737 2,054 (1,346) (189) (254) > 150,936 Net cash provided by operating activities Cash flows from investing activities: Sale of marketable securities Sale of equipment Purchase of land and equipment Purchase of business OL 2,061 X 991 (10,190) 991 > (10,190) (16,337) Cash flows from financing activities: Payment of dividends Purchase of treasury stock (42,003) (42,003) Cash balance, January 1, 20X1 Cash balance, December 31, 20X1 59,351 $ 59,351
