Question

A comparative balance sheet for “Alpha” Company containing data in € for the last
recent years is as follows:

20X2 20X2 20X1 Assets Fixed assets: Land Buildings Less accumulated depreciation Equipment Less accumulated depreciation Total fixed assets 170,000 450.000 (110,000) Comparative Balance Sheet Liabilities & 20X1 Stockholders' Equity Stockholders' equity: 225,000 Common stock 450.000 Retained earnings (100,000) Total stockholders' equity 300.000 Long - term liabilities: (100,000) Long-term notes payable 265,000 135,000 400,000 200.000 100.000 300,000 425.000 (125,000) 30,000 30,000 810,000 775,000 420,000 430,000 Long-term debt Total long-term liabilities Current liabilities: Current assets: 450,000 460,000 ICS Cash and cash equivalents Marketable securities Accounts receivables Inventory Total current assets 20.000 20.000 25,000 41,150 106,150 1,100 25,000 30,000 40,000 96,100 Accounts payable Notes Payable Accrued Expenses Taxes Payable Total current liabilities Total liabilities Total liabilities & stockholders' equity 20.000 20,000 16.150 10,000 66,150 516,150 916,150 30,000 40.000 11,100 30,000 111,100 571,100 871,100 L Total assets 916,150 871,100

Required:
1. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the indirect method.
2. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the direct method. .

Answer 1

Since nothing was mentioned for notes payable in current liabilities, they are treated as trade payables only.

Cash Flow Statement
Indirect Method
Cash Flow from Operating Activities
Net Income		€              64,400
Adjustments
Depreciation	€              35,000			=110000-100000+125000-100000
Gain on sale of land	€              (4,000)
Gain on sale of marketable securities	€              (8,000)
Changes in Current Assets/ Current Liabilities
Decrease in Accounts Receivable	€                5,000			=30000-25000
Increase in inventory	€              (1,150)			=40000-41150
Decrease in Accounts Payable	€            (10,000)			=20000-30000
Decrease In Notes Payable	€            (20,000)			=20000-40000
Increase in Accrued Expenses	€                5,050			=16150-11100
Decrease in Income Tax Payable	€            (20,000)			=10000-30000
Total Adjustments		€           (18,100)
Cash from Operating Activities			€            46,300
Cash flow from Investing Activities
Sale of Land		€              59,000		=225000-170000+4000
Purchase of Equipment		€         (125,000)		=300000-425000
Sale of marketable securities		€              13,000		=25000-20000+8000
Net cash used In investing activities			€         (53,000)
Cash flow from Financing Activities
Issue of Common Stock		€              65,000		=265000-200000
Repayment of Long term debt		€           (10,000)		=420000-430000
Dividend Paid		€           (29,400)		=-(100000+64400-135000)
Net cash used in financing activities			€            25,600
Increase in Cash			€            18,900
Opening Balance of Cash			€              1,100
Closing Balance of Cash			€            20,000

Cash Flow Statement
Direct Method
Cash Flow from Operating Activities
Cash collected from Customers		€        1,140,600		=1135600+30000-25000
Cash collected for Dividend		€                4,150		4150
Cash paid for inventory		€         (731,150)		=-(700000+30000-20000+40000-20000+41150-40000)
Cash paid for selling and administrative expenses		€         (259,950)		=-(125000+175000-35000+11100-16150)
Cash paid for Interest expense		€           (53,500)		-53500
Cash paid for Income tax expense		€           (53,850)		=-(33850+30000-10000)
Cash from Operating Activities			€            46,300
Cash flow from Investing Activities
Sale of Land		€              59,000		=225000-170000+4000
Purchase of Equipment		€         (125,000)		=300000-425000
Sale of marketable securities		€              13,000		=25000-20000+8000
Net cash used In investing activities			€         (53,000)
Cash flow from Financing Activities
Issue of Common Stock		€              65,000		=265000-200000
Repayment of Long term debt		€           (10,000)		=420000-430000
Dividend Paid		€           (29,400)		=-(100000+64400-135000)
Net cash used in financing activities			€            25,600
Increase in Cash			€            18,900
Opening Balance of Cash			€              1,100
Closing Balance of Cash			€            20,000