Greg and Rhonda are examining the cash flow statement for ABC Company for the year ending December 31, 2019. ABC Company Cash Flow Statement For the year ending December 31, 2019 Cash Inflows From sale of merchandise $390,000 From sale of common shares 420,000 From sale of investment (purchased below) 80,000 From amortization 55,000 From issue of note for truck 20,000 From interest on investment 6,000 Total sources of cash $971,000 Cash Outflows For purchase of fixtures and equipment $340,000 For merchandise purchased for resale 268,000 For operating expenses 160,000 For purchase of investment 75,000 For purchase of truck by issue of note 20,000 For interest on note payable 3,000 Total uses of cash 866,000 Net increase in cash $105,000 Greg claims that ABC Company's cash flow statement is an excellent example of a superb first year, because cash increased by $105,000. Rhonda replies that it was not a superb year, it was an operating failure she added. She said that the statement is incorrect and that the $105,000 is not the actual increase in cash. The cash balance at the start of the year was $140,000 Required: With whom do you agree, Gregor Rhonda? Explain. 2. Using the data provided, prepare a correct statement of cash flow using the indirect method. The only non-cash items in the income statement are the amortization expense and the gain on the sale of the investment. There were no changes in any current accounts other than cash. 1. Greg and Rhonda are examining the cash flow statement for ABC Company for the year ending December 31, 2019. ABC Company Cash Flow Statement For the year ending December 31, 2019 Cash Inflows From sale of merchandise $390,000 From sale of common shares 420,000 From sale of investment (purchased below) 80,000 From amortization 55,000 From issue of note for truck 20,000 From interest on investment 6,000 Total sources of cash $971,000 Cash Outflows For purchase of fixtures and equipment $340,000 For merchandise purchased for resale 268,000 For operating expenses 160,000 For purchase of investment 75,000 For purchase of truck by issue of note 20,000 For interest on note payable 3,000 Total uses of cash 866,000 Net increase in cash $105,000 Greg claims that ABC Company's cash flow statement is an excellent example of a superb first year, because cash increased by $105,000. Rhonda replies that it was not a superb year, it was an operating failure she added. She said that the statement is incorrect and that the $105,000 is not the actual increase in cash. The cash balance at the start of the year was $140,000 Required: With whom do you agree, Gregor Rhonda? Explain. 2. Using the data provided, prepare a correct statement of cash flow using the indirect method. The only non-cash items in the income statement are the amortization expense and the gain on the sale of the investment. There were no changes in any current accounts other than cash. 1
