Question

E12-13 Preparing and Evaluating a Statement of Cash Flows (Indirect Method) from Comparative Balance Sheets and Income Statements (LO 12-1, LO 12-2, LO 12-3, LO 12-4, LO 12-5) Consultex, Inc., was founded in 2015 as a small financial consulting business. The company had done reasonably well in 2015-2017 but started noticing its cash dwindle early in 2018. In January 2018, Consultex had paid $14,500 to purchase land and repaid $3,000 principal on an existing promissory note. In March, the company paid $1,700 cash for dividends and $1,100 to repurchase and eliminate Consultex stock that had previously been issued for $1,100. To improve its cash position, Consultex borrowed $4,700 by signing a new promissory note in May and also issued stock to a new private investor for $11,700 cash. Year-end comparative balance sheets and income statements are presented below. CONSULTEX, INC. Balance Sheet October 31 2018 2017 $ 9,490 $12,500 13,400 11,700 1,850 2,700 25,500 11,000 $50,240 $37,900 Assets Cash Accounts Receivable Prepaid Rent Land Total Assets Liabilities and Stockholders' Equity Salaries and Wages Payable Income Taxes Payable Notes Payable (long-term) Common Stock Retained Earnings Total Liabilities and Stockholders' Equity $ 1,850 $ 2,700 1,100 1,100 13,400 11,700 19,300 8,700 14,590 13,700 $50,240 $37,900 CONSULTEX, INC. Income Statement For the Year Ended October 31 2018 2017 Sales Revenue $156,500 $ 159,500 Salaries and Wages Expense 97,700 96,700 Rent Expense 35,700 29,700 Utilities Expenses 19,400 19,700 Income before Income Tax Expense 3,700 13,400 Income Tax Expense 1,110 4,020 Net Income $ 2,590 $ 9,380

Answer 1

Solution

CONSULTEX, INC
Cash Flow Statement
For year ended 31st October 31 2018
A. Cash Flows from Operating Activity
Net Income		$         2,590.00
Changes in current operating assets and liabilities:
Increase in Accounts receivables	$        (1,700.00)
Decrease In Salaries and wages payable	$            (850.00)
Decrease in Prepaid rent	$              850.00
		$       (1,700.00)
Net cash flow from Operating activities		$             890.00
B. Cash flows from Investing Activities
Cash paid for purchase of land	$      (14,500.00)
Net cash flow used for investing activities		$     (14,500.00)
C. Cash Flows from Financing activities
Cash received from sale of common stock	$        11,700.00
Cash Paid for Purchase of Own shares	$        (1,100.00)
Payment of Dividend	$        (1,700.00)
Cash received from Issue of Notes payable	$          4,700.00
Repayment of Notes payable	$        (3,000.00)
Cash flows from Financing activities		$       10,600.00
Net Increase (Decrease) in Cash [A+B+C]		$       (3,010.00)
Cash at the beginning		$       12,500.00
Cash at the end		$         9,490.00

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.