Question

AP-10B LO 3 6 Carlin's Pub Inc. has prepared the following statement of cash flows for the year end. Carlin's Pub Inc. Statement of Cash Flows For the Year Ended December 31, 2020 Cash Flow from Operating Activities Net Income $56,200 Adjustments for Non-Cash Items Depreciation Expense 3,100 Changes in Opening Assets and Liabilities Increase in Accounts Receivable (31,000) Increase in Food & Beverage Inventory (33,000) Decrease in Accounts Payable (26,000) Net Cash Provided (Used) by Operating Activities ($30,700) Cash Flow from Investing Activities Purchase of Equipment Sale of Land Net Cash Provided (Used) by Investing Activities (95,000) 120,000 25,000 Cash Flow from Financing Activities Proceeds from Issue of Common Shares Proceeds from Notes Payable Payment of Cash Dividends Net Cash Provided (Used) by Financing Activities 10,000 45,000 (40,000) 15,000 Net Increase (Decrease) in Cash Cash at the Beginning of the Year Cash at the End of the Year 9,300 12,000 $21,300 Required a) The company had a net income during the year, however, it had a negative cash flow from operations. Identify the problems that led to a negative cash flow from operations. b) Even though cash flow from operations was negative, total cash increased by $9,300. How did cash increase? c) Are there any other concerns regarding the statement of cash flows that have not been covered in parts a) and b)? 25

Answer 1

ANSWER

A):- THERE IS A NET PROFIT STILL CASH FLOW FROM OPERATION IS NEGATIVE BECAUSE OF THERE IS INCREASE IN ACCOUNT REVEIABLES , INCREASE IN INVENTORY AND DECREASE IN ACCOUNT PAYABLE .THESE ARE THE ITEMS WHICH CREATES HUDDLE FOR CASH TO COME IN OPERATION.

B):- CASH IS INCREASED BY $9300,EVEN THOUGH CASH FLOW FROM OPERATION IS NEGATIVE.THIS HAPPENED BECAUSE CASH CAME IN BUSINESS BY INVESTING ACTIVITY AND FINANCING ACTIVITY WHICH INCREASED CARLIN'S PUB INC. OVERALL CASH

C):-YES,THE ANOTHER CONCERN IS OPERATING CASH FLOW IS NEGATIVE WHICH MEANS CARLIN'S PUB INC. IS NOT ABLE TO PAY IT'S BILL WITHOUT BORROWING MONEY(FINANCING ACTIVITY) OR RASING ADDTIONAL CAPTIAL(INVESTING ACTIVITY).