Avatar Company Uses the Indirect Method to Prepare Its Statement

question 24

Essay

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline & { \mathbf { 2 0 1 4 } } & { \mathbf { 2 0 1 3 } } & { \text { Increase/decrease } } \\\hline \text { Cash } & \$ 21,000 & \$ 18,000 & \$ 3,000 \\\hline \text { Accounts receivable } & 31,000 & 35,000 & ( 4,000) \\\hline \text { Inventory } & 53,000 & 25,000 & 28,000 \\\hline \text { PP\&E, net } & 120,000 & 90,000 & 30,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$$
Additional information provided:
• Equipment costing $52,000 was purchased for cash.
• Equipment with a net asset value of $10,000 was sold for $14,000.
• Depreciation expense of $12,000 was recorded during the year.
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Please prepare the investing activities section of the statement of cash flows using the following format:
$$\begin{array} { | l | l | l | } \hline \text { Investing activities: } & \quad \quad& \quad \quad \\\hline \text { Proceeds from sale of assets } & & \\\hline \text { Acquisition of assets } & & \\\hline \text { Net cash from investing activities } & & \\\hline\end{array}$$

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Definitions:

Horizontal Equity

The principle that individuals or entities in similar financial situations should be treated equally by the tax system or other public policies.

Tax Burdens

The total amount of taxes imposed on an individual or business by a government entity.

Ability to Pay

A principle suggesting that those with greater financial resources should contribute more in taxes.

Economic Income

The total amount of monetary or other benefits received over a period, including wages, rents, interest, and profits, considering both realized and unrealized changes in value.