Question

Martinez Inc., a greeting card company that follows ASPE, had the following statements prepared as at December 31, 2020:

MARTINEZ INC. Comparative Statement of Financial Position December 31
			2020			2019
Cash			$45,745			$25,080
Accounts receivable			58,150			51,170
Inventory			39,950			60,100
Prepaid rent			5,030			4,020
Equipment			164,730			130,100
Accumulated depreciation–equipment			(35,030	)		(25,020	)
Goodwill			34,000			70,000
	Total assets		$312,575			$315,450
Accounts payable			$46,130			$40,100
Income tax payable			3,950			6,100
Salaries and wages payable			8,080			4,080
Short–term loans payable			8,150			10,170
Long–term loans payable			74,000			89,000
Common shares			130,000			130,000
Retained earnings			42,265			36,000
	Total liabilities and shareholders’ equity		$312,575			315,450

MARTINEZ INC. Income Statement Year Ending December 31, 2020
Sales revenue					$343,365
Cost of goods sold					165,000
Gross margin					178,365
Operating expenses					120,000
Operating income					58,365
Interest expense		$11,600
Impairment loss–goodwill		36,000
Gain on disposal of equipment		(3,000	)		44,600
Income before income tax					13,765
Income tax expense					4,100
Net income					$9,665

Additional information:

1.		Dividends on common shares in the amount of $3,400 were declared and paid during 2020.
2.		Depreciation expense is included in operating expenses, as is salaries and wages expense of $72,500.
3.		Equipment with a cost of $38,000 that was 70% depreciated was sold during 2020.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Answer is given below

T accounts have been drafted to find Equipment purchase and income taxes paid

EBIT Working note Net Income Add: Interest Income taxes expense EBIT 9,665 11,600 4,100 25,365 Working notes: opening balance To bank To P and L Account Equipment Account $130,100 Depreciation $72,630 Bank $3,000 $26,600 $14,400 Martinez Inc. Cash Flow Statement under Indirect method Cash flows from Operating Activities Amount Earnings before Interest and Taxes $25,365 Add: Depreciation $36,610 Imapirment Loss on Goodwill $36,000 Gain on disposal of Equipment ($3,000) Operating profit before working Capital changes $94,975 Increase in Accounts receivable ($6,980) Decrease in inventory $20,150 Increase in prepaid rent ($1,010) Increase in Accounts payable $6,030 Increase in Salaries and wages payable $4,000 Income tax paid ($6,250) Interest paid ($11,600) Net Cas Net cash provided by Operating Activities $99,315 Cash flows from Investing Activities New Equipment purchased ($72,630) Sale of Equipment $14,400 Net Cash provided by Investing Activities ($58,230) Cash flows from Financing Activities Repayment of short term notes ($2,020) Repayment of Long term notes ($15,000) Dividend Paid ($3,400)| Net Cash provided by Financing Activities ($20,420) Net Cash inflow/(outflow) $20,665 Opening balance of cash $25,080 Closing balance of cash $45,745 closing balance $205,730 $164,730 $205,730 Accumulated Depreciation- Equipment Plant and Equip A/C $26,600 opening balance closing balance $35,030 P&L $25,020 $36,610 $61,630 $61,630 Bank Account closing balance Income Tax payable $6,250 opening balance $3,950 P&L $6,100 $4,100 $10,200 $10,200