Question

Problem 12-7A The following are the financial statements of Larkspur, Inc.. Larkspur, Inc. Comparative Balance Sheets December 31 Assets 2019 Cash $37,400 Accounts receivable 32,900 Inventory 30,600 Equipment 59,700 Accumulated depreciation equipment (29,100) Total $131,500 2018 $20,500 18,100 20,000 77,900 (23,500) $113,000 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $28,300 $16,500 7,500 8,200 27,900 32,800 18,600 14,200 49,200 41,300 $131,500 $113,000 Larkspur, Inc. Income Statement For the Year Ended December 31, 2019 Sales revenue $241,800 Cost of goods sold 175,200 Gross profit 66,600 Operating expenses 24,600 Income from operations 42,000 Interest expense 3,900 Income before income taxes 38,100 Income tax expense 8,500 Net income $29,600 Additional data:

Answer 1

Solution

LARKSPUR COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities:
Net income		$   29,600.00
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	$ 14,100.00
Increase in accounts receivables	$(14,800.00)
Decrease in inventory	$(10,600.00)
Increase in accounts payable	$ 11,800.00
Decrease in Income tax payable	$     (700.00)
		$       (200.00)
Net cash from Operating Activities		$   29,400.00
Cash flows from investing activities:
Sale of Equipment	$   9,700.00
Net cash from Investing Activities		$     9,700.00
Cash flows from financing activities:
Repayment of Bonds	$ (4,900.00)
Issue of Common stock	$   4,400.00
Dividends paid	$(21,700.00)
Net cash from Financing Activities		$ (22,200.00)
Net change in cash during the year		$   16,900.00
Add: Beginning cash balance		$   20,500.00
Ending cash balance		$   37,400.00

Data in the income statement indicate that there is no gain or loss on sale of equipment.

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.