Question

Consultex, Inc., was founded in 2015 as a small financial consulting business. The company had done reasonably well in 2015-2017 but started noticing its cash dwindle early in 2018. In January 2018, Consultex had paid $16,000 to purchase land and repaid $2,000 principal on an existing promissory note. In March, the company paid $2,000 cash for dividends and $1,000 to repurchase and eliminate Consultex stock that had previously been issued for $1,000. To improve its cash position, Consultex borrowed $5,000 by signing a new promissory note in May and also issued stock to a new private investor for $12,000 cash. Year-end comparative balance sheets and income statements are presented below.

Answer 1

Solution

CONSULTEX, INC
Cash Flow Statement
For year ended 31st October 31 2018
A. Cash Flows from Operating Activity
Net Income		$         3,000.00
Changes in current operating assets and liabilities:
Increase in Accounts receivables	$        (2,000.00)
Decrease in Prepaid rent	$          1,000.00
		$       (1,000.00)
Net cash flow from Operating activities		$         2,000.00
B. Cash flows from Investing Activities
Cash paid for purchase of land	$      (16,000.00)
Net cash flow used for investing activities		$     (16,000.00)
C. Cash Flows from Financing activities
Cash received from sale of common stock	$        12,000.00
Cash Paid for Purchase of Own shares	$        (1,000.00)
Payment of Dividend	$        (2,000.00)
Cash received from Issue of Notes payable	$          5,000.00
Repayment of Notes payable	$        (2,000.00)
Cash flows from Financing activities		$       12,000.00
Net Increase (Decrease) in Cash [A+B+C]		$       (2,000.00)
Cash at the beginning		$       14,000.00
Cash at the end		$       12,000.00

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.