Avatar Company Uses the Indirect Method to Prepare Its Statement

question 80

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:
$\begin{array}{|l|l|l|}\hline\text { Financing activities: } &\quad\quad&\quad\quad \\\hline & \\\hline & \\\hline & \\\hline & \\\hline & \\\hline \text { Net cash from financing activities } &\\\hline\end{array}$

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Definitions:

Performance Measure

Metrics or standards used to evaluate the effectiveness, efficiency, and productivity of an individual, organization, or process.

Corporate Tax Rate

The tax imposed on the net income of a corporation.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity and preferred equity, determining its financial stability and strategy.

WACC

Weighted Average Cost of Capital; an analysis of a company's capital expenditure costs, weighted proportionally across different capital categories.