Question

Question 5 (20 marks) The comparative Balance Sheets and the Income statement for the Marine Corporation are as follow: Marine Corporation Income Statement For the Year Ended December 31, 2019 Sales s 2.500.000 Less: Cost of Goods Sold 1.220,000 Gross Profit 1,280,000 Less: Selling, General & Administrative Expenses 210,000 Operating profit 1.070,000 Less: Depreciation Expense 110,000 Earnings Before Interest and Taxes 960,000 Less: Interest Expense 54.000 Earnings Before Taxes 906,000 Less: Taxes (50%) 453,000 Net Income S 453,000 Marine Corporation Balance Sheet Assets 2018 2019 Cash $35.000 $40,000 Marketable Securities 185.000 170,000 Accounts Receivable 205,000 220,000 Inventories 255,000 240,000 Investments 70,000 35,000 Total current assets $750,000 $705,000 Plant and Equipment 1.200,000 1,560,000 Less Accumulated Amortization 340,000 490,000 Net plant and Equipment 5860,000 $1,070,000 Total Assets 1.610,000 1,775,000 S60,000 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $75,000 Notes payable 25.000 45,000 Accrued Expenses 10,000 5.000 Income Taxes Payable 4.000 9,000 Bonds Payable (2016) 600,000 700,000 Common Stock (100,000 shares) 300,000 300,000 Retained Earnings 611,000 641,000 Total Liabilities and Shareholders' Equity S1 610.000 $1,775.000 Required: Prepare a Statement of Cash Flows for the year ended December 31, 2019 using the Indirect Method showing the operating, investing and financial cashflows up to the net change in cash. 2

Answer 1

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Marine Corporation Cash Flow Statement for the year ended Dec 31st 2019 $ 906,000 Cash Flow from Operating Activities Net Profit before Taxation Adjustments for: Depreciation Interest Expense Operating Profit Before Working Capital changes Decrease in Marketable securities Increase in Accounts Receivables Decrease in Inventory Decrease in Investment Increase in Accounts Payable Increase in Notes Payable Decrease in Accrued expenses Cash generated from operations Income Tax Paid Net Cash generated from operating Activities Cash Flow from Investing Activities Purchase of Plant and Equipment Net Cash used from Investing Activities Cash Flow from Financing Activities Proceeds from issue of bonds payable Interest Expense Dividend Paid Net Cash generated from Financing Activities Net Increase in cash and Cash Equivalents $ 150,000 $ 54,000 $ 1,110,000 $ 15,000 $ -15,000 $ 15,000 $ 35,000 $ 15,000 $ 20,000 $ -5,000 $ 1,190,000 $ -448,000 $ 742,000 $ -360,000 $-360,000 $ 100,000 $ -54,000 $ -423,000 $-377,000 $ 5,000 Working Income Tax Paid Income Tax Expense Add: Income Tax liability in beginning of year Less: Income Tax liability in end of year Income Tax Paid $ 453,000 $ 4,000 $ 9,000 $ 448,000 Dividend Paid Opening balance of retained earnings Add: Net Income Less : Closing balance of retained earnings Dividend Paid $ 611,000 $ 453,000 $ 641,000 $ 423,000 Depreciation Closing balance of accumulated Depreciation Less: Opening balance of accumulated Depreciation $ 490,000 $ 340,000 $ 150,000 Plant and Equipment Closing balance of plant and Equipment Less: Opening balance of plant and Equipment Purchase of Plant and Equipment $ 1,560,000 $ 1,200,000 $ 360,000