Background / Description The financial statements of Morse Limited appear below. Table 3: MORSE LIMITED Comparative Statements of Financial Position…

Background / Description

The financial statements of Morse Limited appear below.

Table 3: MORSE LIMITED Comparative Statements of Financial Position (Dec. 31)Assets20162015Cash$59,000$23,000Accounts receivable31,00034,000Merchandise inventory20,00015,000Property, plan, and equipment50,00078,000Accumulated depreciation(20,000)(24,000)Total$140,000$126,000Table 4: MORSE LIMITED Comparative Statements of Financial Position (Dec. 31) ContinuedLiabilities and Shareholders’ Equity20162015Accounts payable$15,000$23,000Income tax payable13,0008,000Mortgage payable 9,00033,000Common shares39,00024,000Retained earnings64,00038,000Total $140,000$126,000Table 5: MORSE LIMITED Income Statement Year Ended December 31 2016 

Sales …………………………………………………………………………… 

$380,000 

Cost of goods sold ……………………………………………………………. 

(290,000) 

Gross profit ……………………………………………………………………. 

90,000 

Operating expenses ………………………………………………………….. 

(36,000) 

Interest expense ……………………………………………………………… 

(4,000) 

Profit before income tax ……………………………………………………… 

50,000 

Income tax expense ………………………………………………………….. 

(10,000) 

Profit …………………………………………………………………………… 

$40,000

Additional information regarding fiscal 2016:

  1. Dividends declared and paid were $14,000.
  2. During the year, equipment was sold for $12,000 cash. This equipment cost $28,000 originally and had a carrying amount of $12,000 at the time of sale.
  3. Depreciation expense is included in operating expenses.
  4. All sales and purchases are on account.
  5. Accounts payable pertain to merchandise suppliers.
  6. All operating expenses except for depreciation were paid in cash.

Instructions

  1. Using the direct method, prepare a statement of cash flows for the year ended December 31, 2016.
  2. Using the indirect method, prepare the Operating Activities section of the statement of cash flows for the year ended December 31, 2016.

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