Prepare Pharoah Corporation’s cash flow statement for 2028 using the indirect method under ASPE, given the comparative balance sheets (2028 vs 2027), profit of $25,800, dividends paid of $22,240, and land sold for $5,590 at a $1,250 loss.

What you are building with the indirect method

The indirect method starts with profit, then removes noncash items (like depreciation) and removes gains or adds back losses from investing items (like selling land). After that, you adjust for changes in working capital accounts (current assets and current liabilities) to get cash from operations.

Cash flows from operating activities (indirect)

Start with profit for the year and adjust:

• Profit for the year: $25,800
• Add back depreciation expense (noncash):
• Accumulated depreciation increased from $11,400 to $17,100, so depreciation expense is $%%DOLLAR%%17,100 - 11,400 = 5,700$$
• Add back loss on sale of land (non-operating, investing-related): $1,250

Now adjust for working capital changes:

• Accounts receivable decreased: $%%DOLLAR%%26,680 - 24,170 = 2,510 \quad \Rightarrow \quad +2,510$$ (A decrease in receivables increases cash.)
• Accounts payable decreased: $%%DOLLAR%%35,450 - 14,100 = 21,350 \quad \Rightarrow \quad (21,350)$$ (A decrease in payables uses cash.)

So cash provided by operating activities is: $%%DOLLAR%%25,800 + 5,700 + 1,250 + 2,510 - 21,350 = 13,910$$

Cash flows from investing activities

Only the land transaction affects investing cash flows.

You are told the land was sold for cash of $5,590, so:

• Proceeds from sale of land: $5,590

(Quick check: the land account dropped by $29,640 to $22,800, a decrease of $6,840. Since there was a $1,250 loss, the land’s book value sold was $5,590 + $1,250 = $6,840, which matches, so there were no land purchases.)

Cash flows from financing activities

• Common shares increased: $%%DOLLAR%%85,500 - 78,660 = 6,840 \quad \Rightarrow \quad +6,840$$
• Dividends declared and paid: $(22,240)$

Net cash used in financing: $%%DOLLAR%%6,840 - 22,240 = (15,400)$$

Completed cash flow statement (ASPE, indirect)

PHAROAH CORPORATION Statement of Cash Flows Year Ended December 31, 2028

Cash flows from operating activities Profit for the year........................................ $25,800 Adjustments to reconcile profit to net cash provided by operating activities: Depreciation expense.................................... 5,700 Loss on sale of land........................................ 1,250 Changes in non-cash working capital: Decrease in accounts receivable.................. 2,510 Decrease in accounts payable....................... (21,350) Net cash provided by operating activities.... $13,910

Cash flows from investing activities Proceeds from sale of land............................. 5,590 Net cash provided by investing activities..... $5,590

Cash flows from financing activities Issuance of common shares............................ 6,840 Dividends paid................................................ (22,240) Net cash used in financing activities.......... $(15,400)

Net increase in cash.................................... $4,100 Cash, beginning of year.................................. 12,200 Cash, end of year......................................... $16,300

Cash reconciliation check

The statement’s net increase in cash is $4,100, and the balance sheet cash moved from $12,200 to $16,300, which is also a $4,100 increase, so the cash flow statement ties out.