Statement of Cash Flows

The comparative balance sheet of Kit Kat Company for December $31,2019$ and $2018,$ is as follows:

Kit Kat Company

Comparative Balance Sheet

December $31,2019$ and $2018$

Assets $20192018$

Cash $$140,35095,900$

Accounts receivable $($net$)95,300102,300$

Inventories $165,200157,900$

Prepaid expenses $6,2405,860$

Investment $($long$-$term$)35,70084,700$

Land $75,00090,000$

Buildings $375,000260,000$

Accumulated depreciation $$ buildings $(71,300)(58,300)$

Machinery and equipment $428,300428,300$

Accumulated depreciation $$ machinery and equipment $(148,500)(138,000)$

Patents $58,00065,000$

Total Assets $$1,159,290$ $$1,093,660$

Liabilities and Stockholders$$ Equity

Accounts Payable $($Merchandise Creditors$)43,50046,700$

Accrued expenses payable $($operating expenses$)14,00012,500$

Income taxes payable $7,9008,400$

Dividends payable $14,00010,000$

Mortgage note payable, due in $10$ years $40,0000$

Bonds payable $150,000250,00$

Common stock, $$30$ par $450,000375,000$

Excess of issue price over par $$ common stock $66,25041,250$

Retained earnings $373,640349,810$

Total liabilities and stockholder$$s equity $1,159,2901,093,660$

$$

The income statement for Kit Kat Company follows:

Kit Kat Company

Income Statement

December $31,2019$

Sales $$1,100,000$

Cost of Merchandise sold $710,000$

Gross Profit $390,00$

Operating expenses:

Depreciation expense $23,500$

Patent amortization $7,000$

Other operating expenses $196,000$

Total Operating expenses $226,500$

Income from operations $163,500$

Other revenue and expense

Gain on sale of investments $11,000$

Interest expense $(26,000)(15,000)$

Income before income tax $148,500$

Income tax expense $50,000$

Net Income $98,500$

An examination of the accounting records revealed the following additional information applicable to $2019$:

a$)$ Land costing $$15,000$ was sold for $$15,000$

b$)$ A mortgage note was issued for $$40,000$

c$)$ A building costing $$115,000$ was constructed

d$)2,500$ shares of common stock were issued at $$40$ in exchange for the bonds payable

e$)$ Cash dividends declared were $$74,670$

$$

Instructions:

$1.$ Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities

Kit Kat Company

Statement of Cash Flows $$ Indirect Method

For the year ended December $31,2019$

Cash flows from operating activities:

Net Income $$148,500$

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

Changes in current operating assets and liabilities:

Net Cash flow from operating activities

Cash flows from $($used for$)$ investing activities:

Net cash flow used for investing activities

Cash flows from $($used for$)$ financing activities

Net Cash flow used for financing activities

$2.$ Prepare a statement of cash flows, using the direct method of reporting cash flows from operating activities. For purposes of the direct method, the adjustment to arrive at cash payments for operating expenses includes changes in prepaid expenses.

Kit Kat Company

Statement of Cash Flows $$ Direct Method

For the year ended December $31,2019$

Cash flows from operating activities:

Net cash flow from operating activities:

Cash flows from $($used for$)$ investing activities:

Net cash flow used for investing activities

Cash flows from $($used for$)$ financing activities:

Net cash flow used for financing activities