Question

The following information is available for Coronado Industries for the year ended December 31, 2022.

Beginning cash balance		$ 18,000
Accounts payable increase		4,275
Depreciation expense		30,750
Accounts receivable decrease		3,600
Inventory decrease		2,325
Net income		42,900
Cash received for sale of land at book value		78,000
Cash dividends paid		28,500
Income taxes payable decrease		2,925
Cash used to purchase land		60,750
Cash used to redeem bonds		49,500
Cash received from issuing stock		120,000

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

Solution

Coronado Industries
Cash Flow Statement
For year ended 31st December 2022
A. Cash Flows from Operating Activity
Net Income		$           42,900.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$       30,750.00
Changes in current operating assets and liabilities:
Decrease in Accounts receivables	$          3,600.00
Decrease in Inventory	$          2,325.00
Decrease in income tax payable	$       (2,925.00)
Increase in Accounts payable	$          4,275.00
		$           38,025.00
Net cash flow from Operating activities		$           80,925.00
B. Cash flows from Investing Activities
Sale of land	$       78,000.00
Purchase of land	$     (60,750.00)
Net cash flow used for investing activities		$           17,250.00
C. Cash Flows from Financing activities
Issue of Common stock	$     120,000.00
Cash used to redeem bonds	$     (49,500.00)
Cash paid for dividends	$     (28,500.00)
Cash flows from Financing activities		$           42,000.00
Net Increase (Decrease) in Cash [A+B+C]		$        140,175.00
Cash at the beginning		$           18,000.00
Cash at the end		$        158,175.00

..General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.