Question

The financial statements of China Chance Company appear below: China Chance Company Income Statement For the Year Ended December 31, 2018 wan OLO Sales Cost of mods sold Cross profit Depreciation expense Other operating expenses Profit from operations Interest expense Phot before income taxe Income tax expense China Chance Company Sumcnto Facial Price Desir Assets S 1200 17 2100 Cash Accu eivable Merchandise inventory Property and equipment Accumulated depreciation Total AND 514 S12 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Ronds payable Share Capital - Ordinary Retained earnings Total SO 15 1700 SI S 10000 40 MO S1200 The following additional data were provided: 1. Dividends declared and paid were $51,000. SOK.000 gially 2 During the year, quipment was sold for $15,000 cash. This met and had a book value of $15.000 at the time of sale 1 All sales and purchases a n account 4 Accounts payable balance merchandise suppliers 5 All operating expe c for depreciate were paid in cash 6 All shares were issued in cash Required: Prepare a statement of cash flows for China Chance Company using the indirect method Part Give two examples of business activities event, which change the non-cash account balances but do not have impact on cash flow (marks)

Answer 1

Cash flow statement using the indirect method:

Cash flow from operating activities
Net profit	$         84,000
Adjustments
Depreciation expense	$            9,000
Interest expense	$         11,000
(Increase) decrease in current assets
Accounts receivable (25000-17000)	$            8,000
Merchandise inventory (21000-42000)	$       (21,000)
Increase (decrease) in current assets
Accounts payable (26000-32000)	$         (6,000)
Income tax payable (15000-10000)	$            5,000
Net cash proceeds from operating activities	$         90,000
Cash flow from investing activities
Sale of equipment	$         15,000
Net cash proceeds from investing activities	$         15,000
Cash flow from financing activities
Proceeds from share capital issue	$         17,000
Bonds repaid	$       (26,000)
Dividendspaid	$       (51,000)
Interest paid	$       (11,000)
Net cash used in financing activities	$       (71,000)
Net Increase(decrease) in cash	$         34,000
Beginning cash balance	$         32,000
Ending cash balance (34000+32000)	$         66,000

PART B

Examples of business events that change non-cash accounts balances:

1) Depreciation and amortization on property, plant & and equipment is a non-cash expense

2) Deferred taxes adjustment