Question

Statement of comprehensive income For the year ended December 31, 2011 Sales revenue RM 1,500,000 (797.2001 702,800 Cost of goods sold Less: Operating expenses Depreciation expense 22,800 Rent expense Salaries expense 24,000 256,000 258.000 Other operating expenses (560,800 142,000 Net income Other information: 1. Purchased land for RM112,000. 2. Purchased new equipment for RM100,000. Sold old equipment that cost RM132,000 with accumulated depreciation of 3. RM112,000 for RM20,000 cash. 4. Issued common sbares for RM50,000, Required: I. Prepare the statement of cash flows for 2011 using the indirect method. II. Explain why a company with positive net income might not have an increase in cash.

Answer 1

$ 142,000 $ $ 22,800 164,800 Statement of Cash Flows For the Year Ended December 31, 2011 Cash flow from Operating Activities: Net Income Adjustments to Convert Net Income to Net Cash basis: Depreciation $ 22,800 Changes in Current Operating assets and liabilities - Net Cash provided by operating activities Cash Flow from Investing Activities Purchase of Land $ (112,000) Purchase of new equipment $ (100,000) Sale of Equipment $ 20,000 Net Cash used for Investing activities Cash Flow from Financing Activities Isssuance of Common stock $ 50,000 Net Cash provided by Financing activities Net Increase in Cash $ (192,000) $ $ 50,000 22,800 II Net Income is part of Financial statement it will prepared on the basis of Revenue items only. And balance sheet prepared on the basis of capital items. But cash flow statement is prepared on the basis of Revenue items and capital items incured through. In this problem Net Profit Incresed and net increase in cash incrased not morethan the net income because capital expenditure-out flow is incured more than capital inflow.