Construction of simple cash flow statement Sonne AG is a magazine publisher and distributor. Set out in Exhibit 6.23 are the company’s balance sheets at the start and end of year 7, together with its income statement for year 7.

A summary of the company’s ledger account, Cash, is presented below. The amounts are also in thousands.

Cash Dr. Cr.

Balance, 1/1/year 7 37 Purchase of buildings and equipment 49 Sale of land 14 Purchase of investments 3 Collection of debts from credit Payments for paper and other inventories 185 customers 58 Payments for rent 12 Long-term loan 50 Payments of dividends 8 Receipts from new subscriptions 98 Tax payments 7 Cash sales of magazines 80 Other operating outlays 16 Interest payments 6 Balance, 31/12/year 7 51 Van Baerle Company Cash account: transactions in x9

(amounts in 000)

Cash Balance, 1/1/x9 32 Salaries paid 124 Disposal of building 37 Dividends paid 4 Increase in long-term debt 181 Payments to suppliers of goods Receipts from customers 432 and services 204 Disposal of long-term investment 11 Short-term debt repaid 39 Issue of new shares 135 Corporate income taxes paid 16 Purchase of equipment 406 Payment of rent 18 Balance, 31/12/x9 17 Exhibit 6.22

Required

(a) Explain the change in each of Sonne’s balance sheet accounts between the start and end of year 7, using information from the year 7 income statement and the movement in the cash account during the year. For example:

(b) Prepare a cash flow statement for Sonne for year 7, showing separately cash flows from operating, investing and financing activities. Calculate its cash flow from operations by the direct approach.
Classify interest payments and tax payments as operating outflows and dividend payments as financing outflows.

(c) Calculate Sonne’s year 7 cash flow from operations using the indirect approach.

(d) What does the cash flow statement tell us about Sonne’s activities in year 7?
Check figure:

(c) Cash flow from operations 10.AppenedixLO1

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Exhibit 6.23 Fixed assets Land Building and equipment Less: Accumulated depreciation Investments Sonne AG Summary accounts for year 7 (amounts in 000) Balance sheet at 31 December year 6 year 7 year 6 year 7 Shareholders' equity 20 26 20 Share capital 75 75 53 -29 -41 24 25 102 Retained profits 38 45 113 120 Long-term liabilities 0 50 75 g| 61 113 170 28 109 Current liabilities Current assets Inventories Accounts receivable Prepaid rent Accounts payable, paper suppliers 54 Cash Total assets 105 180 65 11 Taxes payable 8 Uneamed subscription revenuee 37 51 135 244 Total equities 180 244 Income statement for year 7 Revenues from: cash sales credit sales subscription sales Total revenues Less: Cost of sales 100 240 -180 Gross profit a| 88888 8 74 Less: Operating expenses Rent on leased asset Depreciation on buildings and equipment Other operating expense Gain on sale of land Operating profit Interest expense Profit before tax Income taxes Net profit -12 -16 +8 59 15