Avatar Company Uses the Indirect Method to Prepare Its Statement

question 70

Essay

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following sections of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline &{ \mathbf { 2 0 1 4 } } & { \mathbf { 2 0 1 3 } } & { \text { Increase/decrease } } \\\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \\\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \\\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \\\hline & & &\\\hline \text { Common stock } & 30,000 & 2,000 & 28,000 \\\hline\text { Retained earnings } & 113,000 & 74,000 & 39,000 \\\hline \text { Treasury stock } & (8,000) & (5,000) & (3,000) \\\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000\\\hline\\\hline\text { Total liabilities and equity }&\$225,000&\$168,000&\$57,000\\\hline\end{array}$$
Additional information:
• No stock was retired.
• No treasury stock was sold.
• During 2014, the company repaid $40,000 of long-term notes payable.
• During 2014, the company borrowed $34,000 on a new note payable.
• Net income for the year was $49,000.
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Please prepare the financing section of the statement of cash flows using the following format:
$$\begin{array} { | l | l | l | } \hline \text { Financing activities: } & & \\\hline \text { Issuance of stock } & & \\\hline \text { Purchase of treasury stock } & & \\\hline \text { Sale of treasury stock } & & \\\hline \text { Borrowing on notes payable } & & \\\hline \text { Repayments of notes payable } & & \\\hline \text { Payment of dividends } & & \\\hline \text { Net cash from financing activities } & & \\\hline\end{array}$$

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Definitions:

Defensive Industries

Sectors of the economy expected to remain stable during various phases of the business cycle, often including utilities and consumer staples.

Pharmaceutical Firms

Companies involved in the research, development, production, and marketing of drugs and other healthcare products.

Public Utilities

Companies that provide essential public services, such as water, electricity, and gas, often subject to governmental regulation.

U.S. Dollar Return

The profit or loss generated on an investment, calculated in U.S. dollars, to account for changes in exchange rates.