Accounting Question - A comparative balance sheet for Halper Corporation appears on the next page, and the statement of cash flows form follows. Explain below, why you must convert from an accrual basis of accounting to a cash basis accounting using the indirect method:
Halpern Corporation Comparative Balance Sheet Dec. 31, 2017 Dec, 31, 2016
Assets
Cash $ 36,000 $31,000
Accounts receivable (net) 70,000 60,000
Prepaid Insurance 25,000 17,000
Land 18,000 40,000
Equipment 70,000 60,000
Accumulated depreciation-equipment (20,000) (13,000)
Total assets $199,000 $195,000
Liabilities and Stockholders' Equity
Accounts payable $ 11,000 $ 6,000
Bonds payable 27,000 19,000
Common stock 140,000 115,000
Retained earnings 21,000 55,000
Total liabilities and stockholders' equity $199,000 $195,000
Additional information:
1. Net Loss for 2017 is $20,000.
2. Cash dividends of $14,000 were declared and paid during the year.
3. Land was sold for cash at a loss of $4,000. This was the only land transaction during the year.
4. $22,000 of bonds were retired during the year at carrying (book) value.
5. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.
6. Equipment was acquired for common stock. The fair value of the stock at the time of exchange was $25,000.
Instructions: Prepare a statement of cash flows for the year ended December 31, 2017, using the indirect method.