Problem:
Prepare statement of cash flows (indirect method) using balance sheet data. Presented below are comparative balance sheets for Millco, Inc., at January 31 and February 28, 2004.
Then write a 350-500 word paper discussing the difference sections of the statement of cash flows assist different sets of users. Also discuss the merits of using the direct method vs the indirect methods of preparation.
MILLCO, INC.
Balance Sheets
February 28 and January 31, 2004
February 28 January 31
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,000 $ 37,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,000 53,000
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,000 94,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $187,000 $184,000
Plant and equipment:
Production equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,000 152,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (24,000) (21,000)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $329,000 $315,000
Liabilities
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,000 $ 44,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000 41,000
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 24,000
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,000 $109,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000 46,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,000 $155,000
Owners' Equity
Common stock, no par value, 40,000 shares authorized,
30,000 and 28,000 shares issued, respectively . . . . . . . . . . . . $104,000 $ 96,000
Retained earnings:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,000 $ 43,000
Net income for month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 29,000
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) (8,000)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000 $ 64,000
Total owners' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $194,000 $160,000
Total liabilities and owners' equity . . . . . . . . . . . . . . . . . . . . . . . . $329,000 $315,000