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Cash Flow - Additional Exercises - SOL

The document provides two exercises involving preparing statements of cash flows using the indirect method. For Exercise 1, the summary prepares a statement of cash flows for a company from 2017 to 2018, showing net cash from operating activities of $35,950, net cash used in investing activities of $48,900, and net cash from financing activities of $22,700, resulting in an overall cash flow change of $9,750 that reconciles the change in cash reported on the balance sheet. For Exercise 2, the summary prepares a full statement of cash flows for a company in 2018 using the indirect method, showing net cash from operating activities of $22,000, net cash used in investing activities of $27,

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195 views5 pages

Cash Flow - Additional Exercises - SOL

The document provides two exercises involving preparing statements of cash flows using the indirect method. For Exercise 1, the summary prepares a statement of cash flows for a company from 2017 to 2018, showing net cash from operating activities of $35,950, net cash used in investing activities of $48,900, and net cash from financing activities of $22,700, resulting in an overall cash flow change of $9,750 that reconciles the change in cash reported on the balance sheet. For Exercise 2, the summary prepares a full statement of cash flows for a company in 2018 using the indirect method, showing net cash from operating activities of $22,000, net cash used in investing activities of $27,

Uploaded by

Mathieu Hindy
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© © All Rights Reserved
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SKEMA

Financial Reporting

Exercises on Cash Flow Statement


Exercise 1

Prepare a Statement of Cash Flows (Indirect Method) for fiscal year (FY) 2018 and place it on
the next page. You are asked to explain and reconcile the total change in cash (from 63,500 in
2017 to 73,250 in 2018).

All required items should be included and appropriately labeled, and line items should be
correctly classified (e.g., operating items should be separated from investing and financing
items). Ignore tax effects. Use parentheses ( ) to indicate items that reduce cash flows; for
example, (200) indicates a cash flow reduction, or use of cash, of 200.

Balance Sheet: 2018 2017


Cash $73,250 $63,500
Accounts receivable 15,250 21,350
Inventory 23,450 18,000
Building and equipment 209,250 160,350
Less: Accumulated depreciation (57,450) (45,750)
Total assets $263,750 $217,450
Liabilities and Owners' Equity
Accounts payable $16,500 $19,000
Wages payable 2,000 2,700
Note payable, long term 56,300 71,000
Contributed capital 103,950 65,900
Retained earnings 85,000 58,850
Total liabilities and owners' equity $263,750 $217,450

Income statement 2018


Sales $205,000
Cost of goods sold (123,500)
D&A (11,700)
Other expenses (43,000)
Net income $26,800

Additional data:

1. bought equipment for cash, $48,900;


2. paid $14,700 on the long-term note payable;
3. issued new shares of stock for $ 38,050 cash;
4. dividends of $650 were declared and paid;
5. other expenses all relate to wages;
6. accounts payable includes only inventory purchases made on credit.

2
Exercise 1: SOLUTION

Net income $26,800


D&A 11,700
Decrease in receivables 6,100
Increase in inventory (5,450)
Decrease in payables (2,500)
Decrease in wages payable (700)
CFOs 35,950
Investing Activities
CAPEX (48,900)
Total Investing (48,900)
Financing Activities
Dividends (650)
Long Term debt (14,700)
Share Issue 38,050
Total Financing 22,700

Cash Flow Change 9,750

3
Exercise 2

Sputnik Inc. is developing its annual financial statements at December 31st, 2018. The
statements are completed except for the statement of cash flows. The completed comparative
balance sheet and income statement are summarized:

Balance Sheet: 2018 2017


Cash $34,000 $29,000
Accounts receivable 35,000 28,000
Inventory 41,000 38,000
Building and equipment 121,000 100,000
Less: Accumulated depreciation (30,000) (25,000)
Total assets $201,000 $170,000
Liabilities and Owners' Equity
Accounts payable $36,000 $27,000
Wages payable 1,200 1,400
Note payable, long term 38,000 44,000
Contributed capital 88,600 72,600
Retained earnings 37,200 25,000
Total liabilities and owners' equity $201,000 $170,000

Income statement 2018


Sales $120,000
Gain on sale of equipment 1,000
Cost of goods sold (70,000)
Other expenses (38,800)
Net income $12,200

Additional data:

1. bought equipment for cash, $31,000. Sold equipment with original cost of $10,000,
accumulated depreciation of $7,000, for $4,000 cash;
2. paid $6,000 on the long-term note payable;
3. issued new shares of stock for $16,000 cash;
4. no dividends were declared or paid;
5. other expenses included D&A, $12,000; wages, $13,000; taxes, $6,000; and other, $7,800;
6. accounts payable includes only inventory purchases made on credit. Because there are
no liability accounts relating to taxes or other expenses, assume that these expenses
were fully paid in cash.

Required:
Prepare the (entire) statement of cash flows for the year ended December 31, 2018 using
the indirect method.

4
Exercise 2: SOLUTION

Net income $12,200


D&A 12,000
Gain on sale of PPE (1,000)
Increase in receivables (7,000)
Increase in inventory (3,000)
Increase in payables 9,000
Decrease in wages payable (200)
CFOs 22,000
Investing Activities
Cash payment to purchase PPE (31,000)
Cash received from sale of PPE 4,000
Total Investing (27,000)
Financing Activities
Long Term debt (6,000)
Share Issue 16,000
Total Financing 10,000

Cash Flow Change 5,000

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