E12-13 Preparing and Evaluating a Statement of Cash Flows (Indirect Method) from Comparative Balance Sheets and Income Statements [LO 12-1, LO 12-2, LO 12-3, LO 12-4, LO 12-5]
Consultex, Inc. was founded in 2012 as a small financial consulting business. The company had done reasonably well in 2012–2014 but started noticing its cash dwindle early in 2015. In January 2015, Consultex had paid $20,000 to purchase land and repaid $2,000 principal on an existing promissory note. In March, the company paid $2,800 cash for dividends and $1,200 to repurchase Consultex stock that had previously been issued for $1,200. To improve its cash position, Consultex borrowed $5,800 by signing a new promissory note in May and also issued stock to a new private investor for $12,800 cash. Year-end comparative balance sheets and income statements are presented below. |
CONSULTEX, INC. | |||||
Balance Sheet | |||||
October 31 | |||||
2015 | 2014 | ||||
Assets | |||||
Cash | $ | 7,730 | $ | 13,800 | |
Accounts Receivable | 15,600 | 12,800 | |||
Prepaid Rent | 2,400 | 3,800 | |||
Land | 32,000 | 12,000 | |||
Total Assets | $ | 57,730 | $ | 42,400 | |
Liabilities and Stockholders’ Equity | |||||
Salaries and Wages Payable | $ | 2,400 | $ | 3,800 | |
Income Taxes Payable | 1,200 | 1,200 | |||
Notes Payable (long-term) | 16,600 | 12,800 | |||
Common Stock | 21,400 | 9,800 | |||
Retained Earnings | 16,130 | 14,800 | |||
Total Liabilities and Stockholders’ Equity | $ | 57,730 | $ | 42,400 | |
CONSULTEX, INC. | |||||
Income Statement | |||||
For the Year Ended October 31 | |||||
2015 | 2014 | ||||
Sales Revenue | $ | 162,000 | $ | 165,000 | |
Salaries and Wages Expense | 98,800 | 97,800 | |||
Rent Expense | 36,800 | 30,800 | |||
Utilities Expenses | 20,500 | 20,800 | |||
Income before Income Tax Expense | 5,900 | 15,600 | |||
Income Tax Expense | 1,770 | 4,680 | |||
Net Income | $ | 4,130 | $ | 10,920 | |
Required: |
Prepare a properly formatted Statement of Cash Flows for Consultex, Inc. for the year ended October 31, 2015 (using the indirect method). (Amounts to be deducted should be indicated with a minus sign.) |
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Answer
CONSULTEX, INC. |
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Statement of Cash Flows |
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For the Year Ended October 31, 2015 |
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Cash Flows from Operating Activities: |
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Net Income |
$4,130 |
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Changes in Current Assets and Current Liabilities |
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Accounts Receivable |
(2,800) |
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Prepaid Rent |
1,400 |
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Salaries and Wages Payable |
(1,400) |
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Cash Provided by Operating Activities |
1,330 |
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Cash Flows from Investing Activities: |
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Purchased Land |
(20,000) |
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Cash Used in Investing Activities |
(20,000) |
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Cash Flows from Financing Activities: |
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Repaid Promissory Note Principal |
(2,000) |
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Repurchased Company Common Stock |
(1,200) |
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Issued New Company Common Stock |
12,800 |
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Paid Cash Dividends |
(2,800) |
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Issued New Promissory Note |
5,800 |
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Cash Provided by Financing Activities |
12,600 |
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Net Decrease in Cash = $ 1330 – 20000 + 12600 |
$ (6,070) |
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Beginning Cash Position, October 31, 2014 |
13,800 |
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Ending Cash Position, October 31, 2015 = 13800 - 6070 |
$ 7,730 |
E12-13 Preparing and Evaluating a Statement of Cash Flows (Indirect Method) from Comparative Balance Sheets and...
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