Question

Natalie has prepared the balance sheet and income statement of Cookie and Coffe Creations Inc. for the first year of operations, but does not understand how to prepare the statement of cash flows. The income statement and balance sheet appear below. Recall that the company started operations on November 1, 2017, so all of the opening balances are zero. The income statement and balance sheet appear below. Recall that the company started operations on November 1,2017, socall of the opening balances are zero.

Additional information:

1. Recall from Chapter 15 that the company bought kitchen equipment for 17000 on November 1,2017, and signed a 12000 notes payable to help pay for it. The terms provide for semianual fixed principial payments of 2000 on May 1 and November 1 of each year, plus interest of 5%. All other furniture, fixture and equipment were purchased during the year for cash.

2. Recall from Chapter 14 that the company originally issued 25,930 common shares for 25,930 of which 750 shares were purchased from the lawyer for 500.

Prepare statement cash flows using :

1. Direct method

2. Indirect method

COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2018 Sales $462,500 Cost of goods sold 231,250 Gross profit 231,250 Operating expenses Salaries and wages expense $92,500 Depreciation expense 9,850 138,337 Other operating expenses 35,987 92,913 Income from operations Other expenses 413 Interest expense 92,500 Income before income tax 18,500 Income tax expense $74,000 Net income COOKIE&COFFEE CREATIONS INC Balance Sheet

Answer 1

1. Direct Method:

Cookie and Coffee Creations Inc. Statement of Cash Flows For the year ended October 31, 2018
Cash Flows from Operating Activities	$	$
Cash Inflows
Cash received from sales ( 462,500 - 3,250)		459,250
Cash Outflows
Cash paid for inventory ( 231,250 + 17,897 - 5,848)	243,299
Cash paid for salaries and wages ( 92,500 - 2,250)	90,250
Cash paid for other operating expenses ( 35,987 + 6,300)	42,287
Total Cash Outflows		375,836
Net cash flows from Operating Activities		83,414
Cash Flows from Investing Activities
Cash paid for purchase of equipment	(99,700)
Net cash used in Investing Activities		(99,700)
Cash Flows from Financing Activities
Cash received from issuance of common stock	25,930
Cash received from issuance of preferred stock	14,000
Cash received from issuance of notes payable	12,000
Cash paid for treasury stock	(500)
Cash paid to retire notes payable	(2,000)
Cash paid for interest	(225)
Cash dividends paid	(700)
Net cash flows from Financing Activities		48,505
Net increase in cash		32,219
Beginning cash balance		0
Ending cash balance		32,219

2. Indirect method :

Cookie and Coffee Creations Inc. Statement of Cash Flows For the year ended October 31, 2018
Cash flows from Operating Activities	$	$
Net Income		74,000
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	9,850
Interest expense	413
Increase in accounts receivable	(3,250)
Increase in inventories	(17,897)
Increase in prepaid rent	(6,300)
Increase in accounts payable	5,848
Increase in income taxes payable	18,500
Increase in salaries and wages payable	2,250	9,414
Net cash flows from Operating Activities		83,414
Cash Flows from Investing Activities
Cash paid for purchase of equipment	(99,700)
Net cash used in Investing Activities		(99,700
Cash Flows from Financing Activities
Cash received from issuance of common stock	25,930
Cash received from issuance of preferred stock	14,000
Cash received from issuance of note payable	12,000
Cash paid for treasury stock	(500)
Cash paid to retire note payable	(2,000)
Cash paid for interest	(225)
Cash dividends paid	(700)
Net cash flows from Financing Activities		48,505
Net increase in cash		32,219
Beginning cash balance		0
Ending cash balance		32,219