Question

Question 2 (10 Marks) The Statement of Cash Flows of Gourmet Corporation for Year Ended December 31, Year 2019 (refer Exhibit 2.1) was prepared based on the following information on Gourmet Corporation's Balance Sheet and Income Statement. Exhibit 2.4 is a conversion adjustment made on the Cash Flows from Operations. Some additional information also included. Exhibit 2.1: The Statement of Cash Flows of Gourmet Corporation for Year Ended December 31, Year 2019 Gourmet Corporation Statement of Cash Flows For Year Ended December 31, Year 2019 $ 127,000 42,000 -5,000 -15,300 7,200 2,600 - 12,580 5,000 150,920 Net income Add (deduct) Depreciation & amortization expense Gain on sale of assets Accounts receivable Inventories Prepaid expenses Accounts payable Accrued expenses Net cash flows from operating Purchase of equipment Sale of equipment Net cash flows from investing activities Mortgage payable Preferred stock Dividends Net cash flows from financing activities Net increase in cash Beginning cash Ending cash -60,000 8,000 -52,000 -150,000 175,000 -49,000 -24,000 74,920 48,000 122,920

Answer 1

ans 1
The total equipment purchased for the year was $100000 (440000-(350000-10000))
Out of this $60000 was purchased from cash and $40000 was taken on finance. So $40000 is a non cash transactions as Equipment is financed so it will be shown after preparing statement of cash flow under the head Non cash activities
ans 2
Net cash flow from investing activities consisits of:
1) Purchase of Property plant and Equipment (decrease in cash shown in negative)
2) Sale of Property plant and Equipment (increase in cash shown in positive)
3) Loan given (decrease in cash shown in neagtive)
4) Purchase and sale of investments
In the above data the trabnsactions affecting cash flow from investing activities are:
1) Purchase of equipment	-60000
2) sale of equipment	8000
Net cash flow from investing activities	-52000
ans 3
The method used in exhibit 2.1 is indirect method . This is used in calculating cash flow from opearting activities. In his net income is adjusted to get cash flow from operations
The method used in exhibit 2.4 is direct method in calculation cash flow from operations it includes cash received from customers, and is reduced by cash given to suppliers and payment of expenses
Cash flow from operations (direct method)
Add: Cash receipts from customers	744700
less: Cash paid for inventories	-418380
Less: cash paid for operating activities	-175400
Cash flow from operations	$150920
If any doubt please comment