Umlauf's comparative balance sheets, income statement, and additional information follow.

Additional Information

1. Equipment costing $21,375 with accumulated depreciation of $11,100 is sold for cash.
2. Equipment purchases are for cash.
3. Accumulated Depreciation is affected by depreciation expense and the sale of equipment.
4. The balance of Retained Earnings is affected by dividend declarations and net income.
5. All sales are made on credit.
6. All merchandise inventory purchases are on credit.
7. Accounts Payable balances result from merchandise inventory purchases.
8. Prepaid expenses relate to other operating expenses.

Required

Prepare a statement of cash flows using the direct method for year 2011.

HINT: PLANNING THE SOLUTION

• Prepare a blank statements of cash flows with sections for operating, investing, and financing activities using the direct method format.
• Compute the cash paid for equipment and the cash received from the sale of equipment using the additional information provided along with the amount for depreciation expense and the change in the balances of equipment and accumulated depreciation. Use T-accounts to help chart the effects of the sale and purchase of equipment on the balances of the Equipment account and the Accumulated Depreciation account.
• Compute the effect of net income on the change in the Retained Earnings account balance. Assign the difference between the change in retained earnings and the amount of net income to dividends declared. Adjust the dividends declared amount for the change in the Dividends Payable balance.
• Compute cash received from customers, cash paid for merchandise, cash paid for other operating expenses, and cash paid for taxes as discussed in class.
• Enter the cash effects of reconstruction entries to the appropriate section(s) of the statement.
• Total each section of the statement, determine the total net change in cash, and add it to the beginning balance to get the ending balance of cash.