Question

EVAN INC.

You are provided with the following balance sheets and supplementary information about Evan Inc. for the year ended December 31, 2019. Make reasonable assumptions for any information that is missing.

Evan Inc.
Balance Sheets as of December 31
	2019	2018
Cash	$209,000	$25,000
Accounts receivable	300,000	225,000
Inventory	825,000	885,000
Land	1,500,000	900,000
Plant and equipment	4,000,000	3,300,750
Accumulated depreciation	(1,300,000)	(1,050,000)
Intangibles (net of amortization)	850,000	0
Total Assets	$6,384,000	$4,285,750
Accounts payable and accrued liabilities	$930,000	$828,000
Long-term debt	2,646,000	1,200,000
Common shares	1,515,000	450,000
Retained Earnings	1,293,000	607,750
	$6,384,000	$4,285,750

Evan Inc.

Income Statement for the year ended December 31, 2019

Revenue	$8,800,000
Cost of sales	6,512,000
Gross margin	1,144,000
Selling, general, and administrative expenses	650,000
Depreciation expense	460,000
Amortization expense	50,000
Interest expense	210,000
Gain on sale of equipment	60,000
Income tax expense	120,000
Net income	$ 858,000

Other Information:

• Long-term debt of $1,350,000 was retired by paying cash to the long-term debt holders

• Purchase intangibles in exchange for common shares. The shares and the intangibles were estimated to have a fair market value of $900,000 when they were purchased

• Issued $1,296,000 in new long-term debt for cash

• Purchased $600,000 of land for cash

• Sold equipment with a cost of $300,000 and accumulated depreciation of $210,000 for $150,000 cash.

• Purchased new plant and equipment for cash and $300,000 in long-term debt

Required:

Prepare a cash flow statement for Evan Inc. for the year ended December 31, 2019. Prepare the cash from operations sections using both the direct and indirect methods.

Show how you would disclose any additional or supplementary information related to the cash flow statement that you would be required in the financial statements.

Answer 1

Evan Inc. 300000 Plant and equipment Bal 3300750 Sale Cash 699250 Long Term Debt 300000 Bal. 4300000 858000 4000000 4300000 Statement of Cashflow - Indirect For the period ending 31.12.2019 Cashfow from Operating Activity Net Income Adjusments: Depreciation expense Amortization expense Gain on sale of equipment Increase in Accounts Receivable Decrease in Inventory Increase in Accounts Payable Cash generated from Operating Activity 460000 50000 -60000 -75000 60000 102000 Sale Accumulated depreciation 210000 Bal Depreciation 1300000 1510000 1050000 460000 Bal 537000 1395000 1510000 Cashfow from Investing Activity Land Purchased Equipment sold Equipment Purchased Cash used for Investing Activity -600000 150000 -699250 Plant & Equip. Gain on sale Sale 300000 Accum. Depre 60000 Cash 210000 150000 -1149250 360000 360000 (6512000+825000-885000+828000-930000+650000) = -7000000 Cashfow from Financing Activity Common Stock issued (1515000-450000-900000) Long Term Debt retired Long Term Debt issued Dividend paid (607750+858000-1293000) Cash used for Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 165000 -1350000 1296000 -172750 -61750 184000 25000 209000

Statement of Cashflow - Direct For the period ending 31.12.2019 Cashfow from Operating Activity Collection from Customers Payments to creditors Interest paid Income Tax paid Cash generated from Operating Activity 8725000 - 7000000 -210000 - 120000 1395000 Cashfow from Investing Activity Land Purchased Equipment sold Equipment Purchased Cash used for Investing Activity -600000 150000 -699250 -1149250 Cashfow from Financing Activity Common Stock issued (1515000-450000-900000) Long Term Debt retired Long Term Debt issued Dividend paid (607750+858000-1293000) Cash used for Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 165000 -1350000 1296000 -172750 -61750 184000 25000 209000