Task 3: Statement of Cash Flows, Direct and Indirect Methods

The following financial statements were furnished by Patton Company:

Patton Company Balance Sheets

Past Year Next Year

Assets

Cash

$15,500

$17,000

Accounts receivable

$5,800

6,400

Inventory

$8,700

10,000

Prepaid expenses

$1,340

2,500

Plant and equipment

$42,200

52,500

Accumulated depreciation

($7,200)

($8,200)

Total assets

$66,340

$80,200

Liabilities and Equity Accounts payable (all relate to inventory purchases)

$ 5,100

$6,300

Accrued wages payable

$1,200

$1,650

Common stock

$37,000

$37,000

Retained earnings

$23,040

$35,250

Total liabilities and equity

$66,340

$80,200

Patton Company Income Statement

Sales

$40,700

Less cost of goods sold

($13,200)

Gross margin

$27,500

Less wage expense

($10,600)

Less other operating expenses

($1,130)

Less depreciation expense

($3,560)

Net income (loss)

$12,210

In the past year, Patton purchased equipment for $25,000 and sold some equipment for its book value (i.e., no gain or loss resulted).

Based on this information, perform the following tasks:

1. Prepare a statement of cash flows using the indirect method.

2. Prepare the operating portion of Patton