Question

Heads Up Company was started several years ago by two hockey instructors. The company's comparative balance sheets and income statement are provided below, along with additional information 2017 2016 $ $ 4.000 points Balance Sheet at December 31 Cash Mccounts Receivable Equipment Les Mecumulated Depreciation 6.000 1.000 5,500 (1,500) 5.000 (1.250) Sipped $ 11,000 $ 9,500 Accounts Payable Wages Payable Long-Term Bank Loan Payable Contributed Capital Retained Earnings References 5.000 5.000 3,500 $11.000 $ 9.500 Income statement for 2017 Lessons Revenue Wages Expense Depreciation Expense Income Tax Expense 5 37.500 35.000 1.000 Hot Income $ 1,250 Additional notes a Bought new hockey equipment for cash $500. Borrowed $1,000 cash from the bank during the year Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax assume that this expense was fully paid in cash

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Statement of cash flows for the year ending December 31, 2017.

Description	Amount	Amount
Operating activities:
Net income	1250
Adjustments to reconcile net income to cash
Add: Depreciation expense	250
Add: Decrease in accounts receivable	750
Less: Decrease in accounts payable	(500)
Less: Decrease in wages payable	(250)
Net cash flows from operating activities		1500
Investing activities:
Purchase of equipment	(500)
Net cash flows from investing activities		(500)
Financing activities:
Proceeds from bank loan	1000
Net cash from financing activities		1000
Net increase in cash during the year		2000
Beginning cash balance, January 1, 2017		4000
Ending cash balance, December 31, 2017		6000