Condensed financial data follow for Galenti Inc. Galenti is a private company reporting under ASPE.

Additional information:

1. Short-term investments (reported at cost) were sold for $15,000, resulting in a loss of $7,500. Investments were also purchased during the year.

2. New equipment costing $141,000 was purchased for $71,000 cash and a $70,000 note payable.

3. Equipment with an original cost of $56,000 was sold, resulting in a gain of $8,750.

4. Notes payable that matured during the year were paid in cash.

5. Accounts payable is used for merchandise purchases.

6. Prepaid expenses and accrued expenses payable relate to operating expenses.

7. Accounts receivable relate to merchandise sales.

Instructions

a. Prepare a cash flow statement for the year using the indirect method.

b. Prepare the operating section of the cash fl ow statement using the direct method.

Taking It Further

Galenti had a large cash balance (of $102,700) at December 31, 2021. What recommendations with respect to cash management might you make to Galenti?s management? Explain.

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GALENTI INC. Balance Sheet December 31 Assets 2021 2020 Cash $102,700 $ 47,250 Short-term investments 94,500 107,000 Accounts receivable 80,800 37,000 102,650 Inventory Prepaid expenses Property, plant, and equipment Accumulated depreciation 111,900 10,000 16,000 290,000 205,000 (40,000) (49,500) Total assets $640,400 $474,900 Liabilities and Shareholders' Equity $ 62,700 $ 54,280 Accounts payable Accrued expenses payable Notes payable Common shares Retained earnings 12,100 18,830 140,000 80,000 200,000 121,790 250,000 175,600 Total liabilities and shareholders' equity $640,400 $474,900 GALENTI INC. Income Statement Year Ended December 31, 2021 Revenues Sales $307,500 Gain on sale of equipment 8,750 316,250 Expenses Cost of goods sold $99,460 Operating expenses Depreciation expense Interest expense Loss on sale of short-term investments 24,670 58,700 2,940 7,500 193,270 Profit before income tax 122,980 Income tax expense 32,670 Profit $ 90,310