Continuing Cookie Chronicle CCC12 Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. and would like you to prepare the cash flow statement. The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2020 for the years 2020 and 2019 and the income statement for the year ended October 31, 2020, are presented below. Additional information: Equipment (cost $4,500 and book value $3,000) was disposed of at the beginning of the year for $500 cash and replaced with new equipment purchased for $4,000 cash. 1. Additional equipment was bought for $14,000 on November 1, 2019. A $12,000 note payable was signed. The terms provide for equal semi-annual installment payments of $2,000 on May 1 and November 1 of each year, plus interest of 5 % on the outstanding principal balance. 2. Other equipment was bought for $13,000 cash. 3. Dividends were declared on the preferred and common stock on October 15, 2020, to be paid on November 15, 2018. 4. Accounts payable relate only to merchandise creditors. Prepaid expenses relate only to other operating expenses 5. 6. Instructions (a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2020, using the indirect method. COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2020 $485,625 Sales 222,694 Cost of goods sold Gross profit 262,931 ivie awo das Operating expenses $147,979 Salaries and wages expense do Depreciation expense 17,600 48.186 Other operating expenses 213,765 wolt den 49,166 Income from operations Other expenses $ 413 Interest expense 2.500 2,913 Loss on disposal of plant assets Income before income tax 46,253 9,251 Income tax expense $ 37,002 Net income 12 COOKIE & COFFEE CREATIONS INC. Statement of Cash Flows for the Year Ended October 31, 2020 (a) Cash flows from operating activities Net income. $37,002 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense.... Loss on disposal of plant assets Increase in accounts receivable Increase in inventory. Decrease in prepaid expenses... Decrease in accounts payable. Increase in income taxes payable Increase in salaries and wages payable Increase in interest payable... Net cash provided by operating activities.... .. .. Cash flows from investing activities Sale of equipment Purchase of equipment.. Net cash used by investing activities. Cash flows from financing activities Issuance of preferred stock.... Principal repayment of notes payable Payment of cash dividends ($10,800 + $37,002 $20,802)... Net cash used by financing activities Net increase in cash Cash, November 1 Cash, October 31 $22,324 COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, Assets 2020 2019 $ 22,324 Cash $5,550 bobo3 i Accounts receivable 3,250 2,710 7,897 7,450 Inventory 6,050 Prepaid expenses 5,800 75,500 Equipment 102,000 Accumulated depreciation- (25,200) (9.100) equipment $116,071 $88,160 Total assets Liabilities and Stockholders' Equity Accounts payable $2,450 $1,150 Income taxes payable 9,251 7,200 Dividends payable 27,000 27,000 Salaries and wages payable 7,250 1,280 5 Retu Interest payable 188 0 Note payable 10,000 0 Preferred stock, no par, $6 cumulative, 3,000 and 2,800 shares issued, respectively 15,000 14,000 Common stock, $1 par-25,180 shares issued and outstanding 25,180 25,180 Additional paid-in capital-treasury stock 250 250 Retained earnings 20,802 10,800 Total liabilities and stockholders' equity $116,071 $88,160 Continuing Cookie Chronicle CC ccC13 (The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2020 for the years 2020 and 2019 are presented in Chapter 12.) The income statements for the years ended October 31, 2019 and 2020, are presented below COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31 2019 2020 $485,625 $462,500 Sales 208.125 222,694 Cost of goods sold 254.375 262.931 Gross profit Operating expenses 146,350 147,979 Salaries and wages expense 9,100 17,600 Depreciation expense 42,925 Other operating expenses 48,186 198,375 213.765 Total operating expenses 56.000 49.166 Income from operations Other expenses 0 413 Interest expense 2.500 Loss on disposal of plant assets 2,913 Total other expenses 46,253 56,000 Income before income tax 9,251 14.000 Income tax expense S 37,002 $ 42,000 Net income Additional information: Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semi-annual payments of $2,500 on May 1 and November 1 of each year, plus interest of 5 % on the outstanding balance. Instructions (a) Calculate the following ratios for 2019 and 2020. 1, Current ratio 2. Debt to assets Gross profit rate Profit margin Return on assets (Total assets at November 1, 2018, were $33,180.) 3 4. 5. Return on common stockholders' equity (Total common stockholders' equity at November 1, 2018, was $23,180. Dividends on preferred stock were $16,800 in 2019 and $18,000 in 2020). 6. (b) Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2019 as a base year (c) Prepare a vertical analysis of the income statement for Cookie & Coffee Creations Inc. for 2020 and 2019. Continuing Cookie Chronicle - Answer Sheets 13 (a) 2020 2019 1. Current ratio 2. Debt to assets Gross profit rate 3. 4. Profit margin nl 5. Return on assets 6. Return on common stockholders' equity Continuing Cookie Chronicle -Answer Sheets COOKIE & COFFEE CREATIONS INC Income Statement (b) For The Year Ended October 31 Horizontal Analysis Difference 2019 2020 $462,500 208,125 254,375 $485,625 222,694 262.931 Sales Cost of goods sold Gross profit Operating expenses Salaries & wages expense deG 146,350 9,100 147,979 Depreciation expense Other operating expenses Total operating expenses Income from operations Other expenses Interest expense Loss on disposal of plant 17,600 48,186 213,765 49,166 42,925 198,375 56,000 toeo 413 assets 2,500 Total other expenses 2,913 46,253 9,251 Income before income tax 56,000 14,000 42,000 Income tax expense o Net income 37,002 Continuing Cookie Chronicle -Answer Sheets COOKIE &COFFEE CREATIONS INC. Income Statement For The Year Ended October 31 Vertical Vertical 2020 Analysis 2019 Analysis Sales $485,625 $462,500 Cost of goods sold Gross profit Operating expenses Salaries & wages expense 222,694 208,125 262.931 254,375 147,979 17,600 48,186 146,350 Depreciation expense Other operating expenses Total operating expenses Income from operations 9,100 42,925 198,375 56,000 213,765 49,166 Other expenses Interest expense 413 Loss on disposal of plant 2,500 assets 2,913 Total other expenses 56,000 46,253 Income before income tax Income tax expense 14,000 9,251 $42,000 $ 37,002 Net income