Question

The income statement, balance sheets, and additional information for Video Phones, Inc., are provided.

   

VIDEO PHONES, INC.
Income Statement
For the Year Ended December 31, 2021
Net sales				$	3,536,000
Expenses:
Cost of goods sold	$	2,350,000
Operating expenses		938,000
Depreciation expense		35,000
Loss on sale of land		8,800
Interest expense		19,000
Income tax expense		56,000
Total expenses					3,406,800
Net income				$	129,200

VIDEO PHONES, INC.
Balance Sheets
December 31
	2021				2020
Assets
Current assets:
Cash	$	260,880			$	211,040
Accounts receivable		89,800				68,000
Inventory		105,000				143,000
Prepaid rent		13,920				6,960
Long-term assets:
Investments		113,000				0
Land		218,000				256,000
Equipment		286,000				218,000
Accumulated depreciation		(78,600	)			(43,600	)
Total assets	$	1,008,000			$	859,400
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	73,200			$	89,000
Interest payable		6,800				11,600
Income tax payable		15,800				14,800
Long-term liabilities:
Notes payable		301,000				233,000
Stockholders' equity:
Common stock		380,000				380,000
Retained earnings		231,200				131,000
Total liabilities and stockholders’ equity	$	1,008,000			$	859,400

Additional Information for 2021:

1. Purchase investment in bonds for $113,000.
2. Sell land costing $38,000 for only $29,200, resulting in a $8,800 loss on sale of land.
3. Purchase $68,000 in equipment by issuing a $68,000 long-term note payable to the seller. No cash is exchanged in the transaction.
4. Declare and pay a cash dividend of $29,000.

Required:

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

VIDEO PHONES INC.
Statement of cash flows
For the year ended December 31 2011
A. Cash Flows from Operating Activity
Net Income		$    1,29,200.00
Adjustments to reconcile Net income to net cash flow from operating activities:
Depreciation expense	$      35,000.00
Loss on sale of Land	$         8,800.00
Changes in current operating assets and liabilities:
Decrease in Inventory	$      38,000.00
Increase in Accounts receivables	$    (21,800.00)
Decrsae in prepaid rent	$      (6,960.00)
Increase in income taxes payable	$         1,000.00
Decrease in interest payable	$      (4,800.00)
Decrease in accounts payable	$    (15,800.00)
		$        33,440.00
Net cash flow from Operating activities		$    1,62,640.00
B. Cash flows from Investing Activities
Purchase of Investment	$(1,13,000.00)
Sale of Land	$      29,200.00
Net Cash flows from Investing activities		$      (83,800.00)
C. Cash Flows from Financing activities
Dividends paid	$    (29,000.00)
Cash flows from Financing activities		$      (29,000.00)
Net Increase (Decrease) in Cash [A+B+C]		$        49,840.00
Add: Cash at beginning		$    2,11,040.00
Cash at the end		$    2,60,880.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.