Question

XS Supply Company is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized: Current Year Previous Year Balance Sheet at December 31 Cash Accounts Receivable Inventory Equipment Accumulated Depreciation Equipment Total Assets Accounts Payable Salaries and Wages Payable Note Payable (long-term) Common Stock Retained Earnings Total Liabilities and Stockholders' Equity Income Statement Sales Revenue Cost of Goods Sold Other Expenses Net Income $ 31,850 33,000 39,000 106,000 (28,000) $181,850 $ 34,000 1,050 29,000 82,600 35,200 $181,850 $ 26,750 27,000 37,000 90,000 (24,000) $156,750 $ 26,000 1,150 34,000 71,600 24,000 $156,750 $110,000 65,000 33,800 $ 11,200 Additional Data: a. Bought equipment for cash, $16,000. b. Paid $5,000 on the long-term note payable c. Issued new shares of stock for $11,000 cash. d. No dividends were declared or paid. e. Other expenses included depreciation, $4,000, salaries and wages, $19,000; taxes, $5,000; utilities, $5,800. f Accounts Payable includes only inventory purchases made on credit. Because there are no liability accounts relating to taxes or other expenses, assume that these expenses were fully paid in cash. Required: 1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution

XS Supply Company
Cash Flow Statement
For year ended December 31
A. Cash Flows from Operating Activity
Net Income		$           11,200.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$          4,000.00
Changes in current operating assets and liabilities:
Increase in accounts receivables	$       (6,000.00)
Increase in Accounts payable	$          8,000.00
Increase in Inventory	$       (2,000.00)
Decrease in salaries and wages payable	$           (100.00)
		$             3,900.00
Net cash flow from Operating activities		$           15,100.00
B. Cash flows from Investing Activities
Cash paid for purchase of equipment	$     (16,000.00)
Net cash flow used for investing activities		$        (16,000.00)
C. Cash Flows from Financing activities
Repayment of long term debts	$       (5,000.00)
Issue of common stock	$       11,000.00
Cash flows from Financing activities		$             6,000.00
Net Increase (Decrease) in Cash [A+B+C]		$             5,100.00
Cash balance, January 1		$           26,750.00
Cash balance, December 31		$           31,850.00

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.