Condensed financial data of Arma Inc. follow. ARMA INC. Comparative…

Condensed financial data of Arma Inc. follow.

ARMA INC.
Comparative Balance Sheets
December 31
Assets	2010	2009
Cash	$ 90,109	$ 47,106
Accounts receivable	92,788	33,207
Inventories	111,953	102,727
Prepaid expenses	28,005	25,705
Investments	137,811	114,487
Plant assets	269,915	241,526
Accumulated depreciation	(49,934)	(51,202)
Total	$680,647	$513,556
Liabilities and Stockholders' Equity
Accounts payable	$111,771	$ 67,613
Accrued expenses payable	16,036	17,064
Bonds payable	120,780	149,270
Common stock	219,130	174,360
Retained earnings	212,930	105,249
Total	$680,647	$513,556

ARMA INC.
Income Statement
For the Year Ended December 31, 2010
Sales	$391,001
Less:
Cost of goods sold	$135,669
Operating expenses, excluding depreciation	12,300
Depreciation expense	46,985
Income taxes	26,583
Interest expense	4,909
Loss on sale of plant assets	6,897	233,343
Net income	$157,658

Additional information:

1. New plant assets costing $84,784 were purchased for cash during the year.

2. Old plant assets having an original cost of $56,395 were sold for $1,245 cash.

3. Bonds matured and were paid off at face value for cash.

4. A cash dividend of $49,977 was declared and paid during the year.

Instructions

Prepare a statement of cash flows using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest eg 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

ARMA INC.
Statement of Cash Flows
For the Year Ended December 31, 2010
Cash flows from operating activities
Increase in prepaid expensesSale of investmentsIncrease in accrued expenses payablePurchase of plant assetsPurchase of investmentsDecrease in accrued expenses payableDecrease in prepaid expensesPayment of cash dividendsSale of plant assetsIncrease in inventorySale of common stockDecrease in inventoryRedemption of common stockNet incomeDecrease in accounts payableIncrease in accounts payableRedemption of bondsDecrease in accounts receivableGain on sale of plant assetsDepreciation expenseIssuance of bondsLoss on sale of plant assetsIncrease in accounts receivable	$
Adjustments to reconcile net income to net
cash provided by operating activities
Decrease in accrued expenses payableIncrease in accounts payablePayment of cash dividendsSale of plant assetsIssuance of bondsPurchase of plant assetsDecrease in accounts payableNet incomePurchase of investmentsGain on sale of plant assetsDepreciation expenseLoss on sale of plant assetsIncrease in accounts receivableDecrease in accounts receivableIncrease in inventorySale of investmentsIncrease in prepaid expensesRedemption of common stockSale of common stockRedemption of bondsDecrease in inventoryDecrease in prepaid expensesIncrease in accrued expenses payable	$
Issuance of bondsDecrease in accounts receivableIncrease in inventoryIncrease in prepaid expensesSale of common stockDecrease in inventoryNet incomeLoss on sale of plant assetsPurchase of investmentsGain on sale of plant assetsIncrease in accounts receivableDecrease in accrued expenses payableDecrease in accounts payableIncrease in accounts payableRedemption of common stockIncrease in accrued expenses payableSale of plant assetsDepreciation expensePurchase of plant assetsSale of investmentsPayment of cash dividendsRedemption of bondsDecrease in prepaid expenses
Increase in accounts payableIncrease in accrued expenses payablePayment of cash dividendsLoss on sale of plant assetsSale of investmentsRedemption of common stockSale of plant assetsDecrease in accrued expenses payableNet incomeIssuance of bondsDecrease in inventorySale of common stockRedemption of bondsDepreciation expenseIncrease in accounts receivableIncrease in inventoryDecrease in accounts payablePurchase of investmentsGain on sale of plant assetsDecrease in prepaid expensesDecrease in accounts receivableIncrease in prepaid expensesPurchase of plant assets
Redemption of common stockIncrease in prepaid expensesGain on sale of plant assetsIncrease in accounts payableIncrease in accounts receivableDecrease in accrued expenses payableSale of common stockDecrease in accounts payableSale of plant assetsSale of investmentsDepreciation expensePurchase of plant assetsNet incomeLoss on sale of plant assetsPurchase of investmentsDecrease in inventoryIncrease in inventoryPayment of cash dividendsRedemption of bondsIncrease in accrued expenses payableIssuance of bondsDecrease in accounts receivableDecrease in prepaid expenses
Increase in inventoryIncrease in prepaid expensesIncrease in accounts receivableGain on sale of plant assetsDecrease in accounts payableDepreciation expenseIncrease in accounts payableRedemption of bondsNet incomeSale of investmentsPayment of cash dividendsDecrease in accrued expenses payableIssuance of bondsLoss on sale of plant assetsDecrease in accounts receivableDecrease in inventoryDecrease in prepaid expensesPurchase of plant assetsIncrease in accrued expenses payableRedemption of common stockSale of plant assetsPurchase of investmentsSale of common stock
Increase in inventoryPurchase of plant assetsRedemption of bondsDecrease in accounts payableIssuance of bondsPurchase of investmentsRedemption of common stockSale of common stockSale of plant assetsDecrease in inventoryLoss on sale of plant assetsDecrease in prepaid expensesNet incomeGain on sale of plant assetsDecrease in accounts receivablePayment of cash dividendsIncrease in accounts payableIncrease in accrued expenses payableIncrease in accounts receivableSale of investmentsIncrease in prepaid expensesDecrease in accrued expenses payableDepreciation expense
Decrease in accrued expenses payableGain on sale of plant assetsRedemption of bondsIssuance of bondsPayment of cash dividendsDecrease in prepaid expensesNet incomeDepreciation expenseLoss on sale of plant assetsIncrease in accounts receivableIncrease in inventoryDecrease in accounts payableDecrease in accounts receivableIncrease in prepaid expensesRedemption of common stockDecrease in inventoryIncrease in accounts payableSale of investmentsIncrease in accrued expenses payableSale of plant assetsPurchase of plant assetsPurchase of investmentsSale of common stock		Attachment: 2011-09-11_014651_accountingexam.doc
Net cash usedprovided by operating activities
Cash flows from investing activities
Redemption of bondsPurchase of investmentsGain on sale of plant assetsDecrease in accrued expenses payableIncrease in accrued expenses payableIssuance of bondsSale of common stockPayment of cash dividendsPurchase of plant assetsDecrease in accounts receivableDecrease in accounts payableDecrease in prepaid expensesIncrease in accounts receivableDepreciation expenseDecrease in inventorySale of investmentsRedemption of common stockIncrease in inventoryLoss on sale of plant assetsIncrease in accounts payableSale of plant assetsNet incomeIncrease in prepaid expenses
Increase in accounts receivableGain on sale of plant assetsDecrease in accrued expenses payableSale of plant assetsRedemption of common stockDecrease in accounts payablePurchase of plant assetsPayment of cash dividendsNet incomeIncrease in inventoryDepreciation expenseLoss on sale of plant assetsRedemption of bondsIncrease in prepaid expensesDecrease in accounts receivableDecrease in prepaid expensesIssuance of bondsIncrease in accounts payableSale of investmentsPurchase of investmentsSale of common stockDecrease in inventoryIncrease in accrued expenses payable
Increase in prepaid expensesPurchase of investmentsIncrease in accounts payableRedemption of common stockDepreciation expenseIncrease in inventoryDecrease in accounts receivableIncrease in accrued expenses payableDecrease in accrued expenses payablePayment of cash dividendsDecrease in inventoryIncrease in accounts receivableNet incomeSale of investmentsSale of plant assetsDecrease in accounts payableGain on sale of plant assetsLoss on sale of plant assetsPurchase of plant assetsRedemption of bondsSale of common stockIssuance of bondsDecrease in prepaid expenses
Net cash providedused by investing activities
Cash flows from financing activities
Purchase of plant assetsDecrease in accounts receivableIssuance of bondsIncrease in inventoryDecrease in accounts payableIncrease in accrued expenses payableSale of plant assetsPurchase of investmentsIncrease in prepaid expensesDecrease in inventoryIncrease in accounts payableDepreciation expenseDecrease in prepaid expensesPayment of cash dividendsRedemption of bondsSale of investmentsSale of common stockGain on sale of plant assetsDecrease in accrued expenses payableRedemption of common stockNet incomeLoss on sale of plant assetsIncrease in accounts receivable
Decrease in accounts receivableNet incomeDecrease in prepaid expensesPurchase of investmentsDecrease in accrued expenses payableDecrease in inventoryPurchase of plant assetsDepreciation expenseSale of plant assetsLoss on sale of plant assetsIncrease in accounts receivableSale of common stockRedemption of common stockIncrease in inventoryPayment of cash dividendsIncrease in prepaid expensesIncrease in accrued expenses payableDecrease in accounts payableRedemption of bondsGain on sale of plant assetsSale of investmentsIncrease in accounts payableIssuance of bonds
Decrease in prepaid expensesIncrease in accounts payableDecrease in accounts receivablePurchase of plant assetsIncrease in prepaid expensesPurchase of investmentsSale of common stockPayment of cash dividendsIssuance of bondsGain on sale of plant assetsRedemption of bondsDecrease in accrued expenses payableLoss on sale of plant assetsRedemption of common stockDecrease in inventoryDecrease in accounts payableIncrease in accrued expenses payableNet incomeSale of plant assetsSale of investmentsDepreciation expenseIncrease in accounts receivableIncrease in inventory
Net cash usedprovided by financing activities
Net increasedecrease in cash
Cash at beginning of period
Cash at end of period	$

Condensed financial data of Arma Inc. follow. ARMA INC. Comparative Balance Sheets December 31 Assets 2010 2009 Cash $ 90,109 $ 47,106 Accounts receivable 92,788 33,207 Inventories 111,953 102,727 Prepaid expenses 28,005 25,705 Investments 137,811 114,487 Plant assets 269,915 241,526 Accumulated depreciation (49,934) (51,202) Total $680,647 $513,556 Liabilities and Stockholders' Equity Accounts payable $111,771 $ 67,613 Accrued expenses payable 16,036 17,064 Bonds payable 120,780 149,270 Common stock 219,130 174,360 Retained earnings 212,930 105,249 Total $680,647 $513,556 ARMA INC. Income Statement For the Year Ended December 31, 2010 Sales $391,001 Less: Cost of goods sold $135,669 Operating expenses, excluding depreciation 12,300 Depreciation expense 46,985 Income taxes 26,583 Interest expense 4,909 Loss on sale of plant assets 6,897 233,343 Net income $157,658 Additional information: New plant assets costing $84,784 were purchased for cash during the year. Old plant assets having an original cost of $56,395 were sold for $1,245 cash. Bonds matured and were paid off at face value for cash. A cash dividend of $49,977 was declared and paid during the year. Instructions Prepare a statement of cash flows using the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest eg 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).) ARMA INC. Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities $ Adjustments to reconcile net income to net cash provided by operating activities $ Net cash by operating activities Cash flows from investing activities Net cash by investing activities Cash flows from financing activities Net cash by financing activities Net in cash Cash at beginning of period Cash at end of period $