Exercise on Cash flows statement

For December 31, 2007 and 2008, the comparative balance sheet of the
SIFE Corporation was as follows:
Current assets: Year-End 2007 Year-End 2008
Cash $ 150.000 $ 150.000
Account receivable 300.000 350.000
Inventory 410.000 430.000
Prepaid expense 50.000 30.000
Total current assets 910.000 960.000
Fixed Assets:
Plants & Equipments 2.000.000 2.420.000
Less: Accumulated Depreciation (1.000.000) (1.150.000)
Net plant& equipment 1.000.000 1.270.000
Total assets $1.910.000 $2.230.000
Current liabilities:
Account payable $250.000 $440.000
Notes payable 400.000 400.000
Accrued expenses 70.000 50.000
Long-term liabilities:
Bonds payable, 2013 70.000 120.000
Total liabilities 790.000 1.010.000
Shareholders equity:
Preferred stocks, $100 per value 90.000 90.000
Common stocks, $ 1 per value 120.000 120.000
Paid-in-capital 410.000 410.000
Retained earnings 500.000 600.000
Total stockholders equity 1.120.000 1.220.000
Total liabilities & shareholders’ equity $ 1.910.000 $ 2.230.000

Net income (EAT) for the year 2007 and 2008 were $ 160.000. Otherwise,
depreciation of the year has been estimated by 150000 in 2012.
Earning/preferred shareholder is 0.1
 Answer of the problem
SIFE corporation statement of cash flows for the year ended December 31, 2012
Cash flows from operating activities:
Net income (earnings after taxes EAT) $ 160.000
Add back depreciation 150.000
Increase in accounts receivable (50.000)
Increase in inventory (20.000)
Decrease in prepaid expenses 20.000
Increase in accounts payable 190.000
Decrease in accrued expenses (20.000)
Total adjustments: 270.000
Net cash flows from operating activities 430.000
Cash flows from investing activities:
Increase in plant and equipment (420.000)
Net cash flows from investing activities (420.000)
Cash flow from financing activities:
Increase in bonds payable 50.000
Preferred stock dividends paid (9.000)
Common stock dividends paid (51.000)
Net cash flows from financing activities (10.000)
Net increase in cash flows $ 00.000

According to data provided by the statement of cash flows from

operating activities, SIFE operations are responsible for generating cash-
in-flows that increase the corporation's net income by $270.000. However
most of these increases are insignificant because they came from resources
such as depreciation (150.000), account payable (190.000) and prepaid
expenses (20.000). So, Operating transactions has been considered the main
source of cash estimated by $430.000.

Instead, investing and financing transactions led to net cash-out-

flows estimated by ($430.000). Thus, the corporation doesn’t generate any
additional cash flows (cash-in- flows = cash-out-flows).