[luckyduck7688]

This is possibly the biggest homework problem I've ever had to do. I'm not sure how to go about it. I've attached what little I've done of the statement of cash flows at the end.

Prepare a statement of cash flows for Blue Man Corp. for the year ended December 31, 2008, using the indirect method.
Cash 807,500 700,000 107,500
Accounts receivable 1,128,000 1,168,000 (40,000)
Inventories 1,850,000 1,715,000 135,000
Property, plant, and equipment 3,307,000 2,967,000 340,000
Accumulated depreciation (1,165,000) (1,040,000) (125,000)
Investment in Blige Co. 305,000 275,000 30,000
Loan receivable 262,500 --- 262,500

Accounts payable 1,015,000 955,000 60,000
Income taxes payable 30,000 50,000 (20,000)
Dividends payable 80,000 100,000 (20,000)
Capital lease obligation 400,000 --- 400,000
Capital stock, common, $1 par 500,000 500,000 ---
Additional paid-in capital 1,500,000 1,500,000 ---
Retained earnings 2,970,000 2,680,000 290,000

Additional information:
1. On December 31, 2007, Blue Man acquired 25% of Blige Co.'s common stock for $275,000. On that date, the carrying value of Blige's assets and liabilities, which approximated their fair values, was $1,100,000. Blige reported income of $120,000 for the year ended December 31, 2008. No dividend was paid on Blige's common stock during the year.
2. During 2008, Blue Man loaned $300,000 to TLC Co. an unrelated company. TLC made the first semi-annual principal repayment of $37,500, plus interest at 10%, on December 31, 2008.
3. On January 2, 2008, Blue Man sold equipment costing $60,000, with a carrying amount of $35,000, for $40,000 cash.
4. On December 31, 2008, Blue Man entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Blue Man made the first rental payment of $60,000 when due on January 2, 2009.
5. Net income for 2008 was $370,000
6. Blue Man declared and paid cash dividends for 2008 and 2007 as shown below:
2008 2007
Declared December 15, 2008 December 15, 2007
Paid February 28, 2009 February 28, 2008
Amount $80,000 $100,000


What I've done:
Blue Man Corp.
Statement of Cash Flows
For the Year Ended December 31, 2008

Cash flows from operating activities
Net income 370,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 100,000
Loss on sale of equipment 5,000
Decrease in accounts receivable 40,000
Increase in inventories (135,000)
Increase in accounts payable 60,000
Decrease in income taxes payable (20,000)




Net cash provided (used) by operating activities
Cash flows from investing activities




Net cash provided (used) by investing activities
Cash flows from financing activities
Payment of dividends (20,000)
Payment under capital lease obligation (400,000)


Net cash provided (used) by financing activities
Net increase in cash 107,500
Cash at beginning of period 700,000
Cash at end of period 807,500


If anyone could help.. it would be greatly appreciated. :confused:

[morgaine300]

Let's correct a few things first. I didn't spend a lot of time checking the math, etc. and I haven't looked at everything. I'm supposed to be doing my taxes, not hanging out on here. :-) So I can't justify spending a ton of time on this, plus it's two days later and you may have solved some of it by now. But I'll throw a little out there. If you're still working on it and need more help, just respond and hopefully me or someone can return to this.

The depreciation expense is incorrect. You at least caught that the sale of the equipment would affect the accumulated depreciation, but you did it backwards. You just subtracted the 25,000 off the 125,000 net change in the account. However, when the equipment was sold, the 25,000 of accumulated depreciation comes off the balance. This would lower the balance. Then the difference is now a larger number. The change in that account is the net of one addition and one subtraction. You figured it as though they were both additions.

Best way to deal with that is actually take the beginning balance and make the change you know about. i.e. 1,040,000 - 25,000 from the sale = 1,015,000. So now how much does the expense have to be?

The sale of equipment was not a loss. The value on the books was $35,000 but it was sold for $40,000. Is that a loss?

Payment of dividends is not 20,000. Did you get that from the change in the dividends payable balance? Doesn't work that way. You may be thinking of that account as it can be used to figure out the amount paid. There's two ways of doing this. One is to adjust the amount declared by the change in the dividends payable balance. Subtract an increase and add a decrease. 80,000 declared + 20,000 decrease. But... since the problem is telling you both the amount declared and paid, and when, it's actually just giving you this amount. It says right in the problem what was paid in 2008. It has the declared amount and date, and then when it was paid. Look at the pay dates, and look at what was paid in 2008.

#4 -- was cash exchanged in 2008?

#2 is the hardest to explain and what I honestly just don't have time to get into right now. I'll just give the hint to think through it one sentence at a time. What happened? What cash is involved? Only the operating section is indirect method, which lists just adjustments and not showing where the cash went to and came from. But the investing and financing sections are always direct. i.e. they state exactly where cash went and where it came from. So you always have to think cash, cash, cash. So go through #2 and think CASH. What cash did they receive or spend?

Try to get this stuff corrected and then see what you can do.