Question

Sweet Inc., a greeting card company, had the following statements.

SWEET INC.

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2020 AND 2019

12/31/2020 12/31/2019 Cash and cash equivalents 43,500 63,700

Accounts receivable 47,800 51,000

Inventory 40,400 3,700

Prepaid expenses 4,000 13,000

Long-term available-for-sale investments 34,700 84,000

Land 50,100 25,600

Machinery 123,000 67,000

Accumulated depreciation - machinery (10,000) (13,000)

Total assets 333,500 295,000

Accounts payable 26,500 40,200

Accrued liabilities 4,000 7,500

Bonds payable 40,000 80,000

Common stock 175,000 100,000

Additional paid-in capital 30,000 30,000

Retained earnings 58,000 37,300

Total liabilities and stockholders’ equity 333,500 295,000

SWEET INC.

INCOME STATEMENT

FOR THE YEAR ENDING DECEMBER 31, 2020

Sales revenue 339,800

Cost of goods sold (176,500)

Gross profit 163,300

Operating expenses (120,500)

Operating income 42,800

Gain on sale of machinery 4,000

Loss on sale of investments (9,000) (5,000)

Income before income taxes 37,800

Income tax expense (6,700)

Net income 31,100

Additional information:

1. No purchases of investments occurred during the year.

2. Machinery with a cost of $15,000 that was 50% depreciated was sold during the year.

3. No unrealized gains or losses have occurred on the investments during the year.

4. Bonds with a face value of $40,000 were converted into common stock at par.

Instructions: Using the indirect method, prepare in a statement of cash flows for the year ended December 31, 2020 in accordance with GAAP

Answer 1

Cash Flow statements

Cashflow from Operating Activities:
Income before income taxes		37800
Add: Non-cash and Non-operating items:
Loss on sale of investments		9000
Less: Gain on sale of machinery		-4000
Changes in working capital:
Accounts receivable	+3200
Inventory	-36700
Prepaid expenses	+9000
Accounts payable	-13700
Accrued Liabilities	-3500	-41700
Depreciation		+4500
Less: Income taxes paid		-6700
So, Cashflow from Operating Activities:			-1100
Cashflow from Investing Activities:
Sale of machinery (15000*50%)+4000		+11500
Sale of Investments (84000-34700)-9000		+40300
Land purchased		-24500
Machinery purchased (67000 - 15000 -123000)		-71000
So, Cashflow from Investing Activities:			-43700
Cashflow from Financing activities:
Issue of shares (175000-100000-40000 ie converted)		+35000
Dividends Paid (retained earnings: 37300 (Opening) + 31100 (net income) - 58000 (closing)		-10400
So, Cashflow from Financing activities:			+24600
Total Cashflows during the year			-20200
Add: Opening Balance of cash and cash equivalents			63700
Closing Balance of cash and cash equivalents			43500