Presented ar chages in all the account balances of a compan during the
current year, except for retained earnings.
                     Increase (Decrease)            Increase(Decrease)
           Cash         $79,000          A/C Payables    $(51,000)
           A/Rec (Net)   45,000          Bonds Payable     82,000 
           Inventory    127,000          Common Stk       125,000
           Investments  (47,000)         Add Paid-In-Cap   13,000

Cmpute the net income fr the current year, assuming that there were no
entire in the Retained Earings account except for net income and a
divident dclaration of $19,000 which was paid in the current year.

This accounting question seeks to examine the understanding of a
"Statement of Changes in Financial Position."  Typically this
statement includes a TOTAL for two things:
1.  Statement of net change in working capital (WC)
2.  Analysis of change in WC

There's enough information provided to calculate #2, then work
backward to find income.

In the calculations below, I've included a couple of extra categories
that typically show up on a "Statement of Changes in Financial
Position":

ANALYSIS OF CHANGE IN WC

Changes in Current Assets
------------------------------------
  Cash:     $79,000
  Investment: ($47,000)
  Accounts receivable: $45,000 
  Inventories:  $127,000
  Prepaid expenses:  --

TOT Changes in CA:  $204,000

Changes in Current Liabilities
---------------------------------------
  Accounts payable: ($51,000)
  Notes payable:  $82,000
  Accrued expenses: --
  Federal income taxes: --

TOT Changes in CL: $31,000

============================
TOTAL Change in WC: $235,000
============================

Now it's time to figure out how much of that money came from income. 
The "Statement of net change in working capital" is usually presented
first in an annual report and looks like this.  The bottom line of
$235K will match the bottom line for the "Changes in WC."

Again there are some extra categories not used in your accounting
problem:

STATEMENT OF CHANGES IN FINANCIAL POSITION

Funds provided by:
  Net income:  $129,000
  Depreciation & amortization: --
  Increase in deferred taxes: --

TOT from Operations: $129,000

+  Sale of common stock: $125,000

Funds used for:
  Property, plant, equipment: --
  Dividends:  $19,000

- TOT funds used: $19,000

NET change in WC: $235,000


This problem really produces "income from operations" rather than "net
income," as depreciation and amortization is a common category for
most businesses.  And the problem provides at least one item that is
not necessary -- the "Additional Paid-in Capital" is a balance sheet
item under shareholders' equity but is not necessary to solve this
problem.

Best regards,

Omnivorous-GA

---

Clarification of Answer by omnivorous-ga on 21 Oct 2002 20:00 PDT

Google and its researchers rely on ratings for a sense of how we're
performing.  Please take the time to rate your question, giving it 5*
if it met your needs!

I'm afraid I have to disagree.

The Statement of Cash Flows is a reconciliation of Net Earnings to the
changes in cash.  It has three sections:  1) cash provided (used by)
by operations, 2) cash provided by (used by) financing activity and 3)
cash provided (used by) by investing activity.  The sum of those three
numbers represent your change in cash.

Typically, a Statement of Cash Flows also has the beginning and ending
cash balances (thus the change), but your example doesn't give what
those balances (but it doesn't change the answer as to what Net Income
was).

Here are my computations.

STATEMENT OF CASH FLOWS
Net earnings  -215000
Increase in A/R, Net              	45000
Increase in Inventory	127000
Decrease in A/P	-51000
	--------------
Cash used from operating activity	-94000
	
Decrease in Investments	-47000
Increase in Bonds Payable	82000
	--------------
Cash provided by financing activities	35000
	
Increase in Common Stock	125000
Increase in APIC	13000
	--------------
Cash provided by investing activities	138000
----------------	
Net increase in cash	79000
=================

Cash, beginning of period $ xxxx
Less: Cash, end of period $ xxxxx
Net increase in cash $79000

Hope that helps.

PS, I agree with researcher, its unusually for a company not to have
D&A (depreciation and amortization), which is a non-cash item that is
added in the 'operating activities' section of the Statement of Cash
Flows.