Question

Can someone please help me with this question? I'm actually lost in this topic especially this question ? oops

PA12-4 Preparing and Interpreting a Statement of Cash Flows (Indirect Method) (LO 12-2, LO 12- 3, LO 12-4, LO 12-5] Heads Up Company was started several years ago by two hockey instructors. The company's comparative balance sheets and income statement follow, along with additional information. Current Year Previous Year Balance Sheet at December 31 Cash Accounts Receivable Equipment Accumulated Depreciation-Equipment Total Assets Accounts Payable Salaries and Wages Payable Note Payable (long-term) Common Stock Retained Earnings Total Liabilities and Stockholders' Equity Income Statement Service Revenue Salaries and Wages Expense Depreciation Expense Income Tax Expense Net Income $ 6,300 900 5,500 (1,500) $11,200 $ 500 500 1,700 5,000 3,500 $11,200 $ 4,000 1,750 5,000 (1,250) $ 9,500 $ 1,000 750 500 5,000 2,250 $ 9,500 $37,500 35,000 250 1,000 $ 1,250 Additional Data: a. Bought new hockey equipment for cash, $500. b. Borrowed $1,200 cash from the bank during the year. C. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that this expense was fully paid in cash.

Answer 1

A Cash flow statement provides the following information:
1) Information about company's cash receipt and cash payment during an accounting period.
2) Information about company's operating, investing and financing activities.
3) Information access the company's liquidity, solvency and financing flexibility.
Under the indirect method, net income is converted operating cash flow by making adjustments for the transaction that effect net income but are non cash transactions. The adjustment includes eliminating non cash expenses, non operating items and the changes in the balance sheet account on account of accrual accounting events.

Cash flow from operating activities (CFO), consists of the inflows and outflows of cash resulting from revenue and expense transactions that affect a firm's net income.

Cash flow from investing activities (CFI) consists of the inflow and outflows of cash resulting from the acquisition of long term assets and investment.

Cash Flow from financing activities (CFF) consists of the inflow and outflows of cash resulting from transactions affecting a firm's capital structure.

31 Amount $1,250 Heads Up Company Statement of Cash Flows For year ended December 31 Particulars Amount Cash Flow from Operating Activity Net Income Adjustment reconcile net income net cash flow from operating activities Add: Depreciation and Amortisation Expense $250 Decrease in Accounts Receivable $850 Decrease in accounts payable ($500) Decrease in Salaries and wages payable ($250) Changes in Working Capital Net Cash used for Operating Activity $350 $1,600 ($500) ($500) Cash Flow from (used for) Investing Activity Purchase of Equipment Net Cash Flow used for Investing Activity Cash Flow from (used for) Financing Activity Amount Borrowed Net Cash Flow from Financing Activity Change in Cash and Cash Equivalents Add : Beginning Cash Closing Cash $1,200 $1,200 $2,300 $4,000 $6,300

Working Particulars Closing Balance Opening Balance Assets (A) (B) Accounts Receivable $900 $1,750 Accounts Payable $500 $1,000 Salaries and wages payable $500 $ 750 Increase in Current Assets is Cash Outflow and Decrease in Current Assets in Cash Inflow Increase in Current Liability is Cash Inflow and Decrease in Current Liability in Cash Outflow Increase /(Decrease) (A) - (B) ($850) ($500) ($250)