Question

How would I do direct and indirect cashflow and what would the income statement look at 31st Nov

The company is a merchandiser, i.e. it purchases inventory at wholesale and sells it at retail. As of the 1st of November the company’s balance sheet was as shown next: Balance Sheet as of November

1 ASSETS LIABILITIES AND EQUITY

Cash $100,000

Accounts payable $300,000

Bank CD 250,000

Shareholder loan payable 200,000

Accounts receivable 550,000

Salaries payable 40,000

Inventory 700,000

Common stock 600,000

Property, plant & equipment 2,300,000

Additional paid-in capital 2,400,000

Investment – land 900,000

Retained earnings 1,260,000

Total assets $4,800,000

Total liabilities and equity $4,800,000

During the month of November, the following transactions were recorded:

1. Supplies purchased on account, $45,000

2. Received payments from accounts receivable customers, $475,000

3. Paid salaries previously accrued, $40,000

4. Incurred administrative expenses, recorded to accounts payable, $65,000

5. Made payments on account for accounts payable, $110,000

6. Purchased inventory on account, $185,000

7. Received payments from accounts receivable customers, $317,000

8. Purchased supplies for cash, $18,000

9. Sold inventory on account for $309,000 (cost of the inventory was $204,000)

10. Received interest income from bank CD of $2,300

11. Paid income tax of $8,700

12. Sold inventory for cash for $36,000 less 2% discount (cost of the inventory was $24,000)

13. Made payment on shareholder loan of $90,000 ($50,000 to principal, $40,000 to interest expense)

14. Sold portion of investment land for cash $800,000 (cost base was $720,000)

15. Received cash from new shareholders of $900,000 ($150,000 par value + $750,000 of additional paid-in capital)

16. Purchased equipment for $200,000 ($50,000 cash down payment + $150,000 bank loan)

17. Paid dividends to shareholder of $80,000

18. Accrued salaries payable of $42,000

19. Made payment of accounts payable (for admin expenses) of $60,000

Answer 1

1.

Income Statement For the month ended November 30
Net Sales		$ 344,280
Gain on Sale of Investments		80,000
Interest Revenue		2,300
Total Revenues		426,580
Operating Expenses
Cost of Goods Sold	228,000
Salaries Expense	42,000
Administrative Expenses	65,000
Interest Expense	40,000
Total Expenses		375,000
Income before Taxes		51,580
Income Tax Expense		8,700
Net Income		$ 42,880

2.

Statement of Cash Flows For the month ended November 30
Cash Flows from Operating Activities
Cash received from customers	827,280
Cash received for interest	2,300
Cash paid to suppliers of inventory	(110,000)
Cash paid for supplies	(18,000)
Cash paid for salaries	(40,000)
Cash paid for administrative expenses	(60,000)
Cash paid for interest expense	(40,000)
Cash paid for income taxes	(8,700)
Net cash provided by operations		552,880
Cash Flows from Investing Activities
Cash received on sale of land	800,000
Cash paid for purchase of equipment	(200,000)
Net cash flows from Investing Activities		600,000
Cash Flows from Financing Activities
Cash from issuance of common stock	900,000
Cash from bank loan	150,000
Cash paid for shareholder loan	(90,000)
Cash paid for dividends	(80,000)
Net cash flows from Financing Activities		880,000
Net Increase in cash		$ 1,922,880
Cash balance, November 1		100,000
Cash balance, November 31		$ 2,022,880