Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. for the first year of operations, but does not understand how to prepare the cash flow statement. The income statement and balance sheet appear below. Recall that the company started operations on November 1, 2019, so all of the opening balances are zero.

Additional information:

1. The company bought kitchen equipment (a commercial oven) for $29,000 on November 1, 2019, and signed a $12,000 note payable to help pay for it. The terms provide for semiannual fixed principal payments of $2,000 on May 1 and November 1 of each year, plus interest of 5%. All other furniture, fixture, and equipment were purchased during the year for cash.

2. Recall from Chapter 11 that the company originally issued 25,930 common shares for $25,930, of which 750 shares were repurchased from the lawyer for $500.

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31, 2020

Sales revenue		$462,500
Cost of goods sold		231,250
Gross profit		231,250
Operating expenses
Salaries and wages expense	$92,500
Depreciation expense	3,900
Other operating expenses	35,987	132,387
Income from operations		98,863
Other expenses
Interest expense 413
Income before income tax		98,450
Income tax expense		19,690
Net income		$ 78,760

CCC12 (Continued)

COOKIE & COFFEE CREATIONS INC.

Balance Sheet

October 31, 2020

Assets

Current assets

Cash $86,219

Accounts receivable 3,250

Inventory 17,897

Prepaid expenses 6,300 $113,666

Property, plant, and equipment

Furniture and fixtures $12,500

Accumulated depreciation

furniture and fixtures (1,250) 11,250

Computer equipment 4,200

Accumulated depreciation

computer equipment (600) 3,600

Kitchen equipment 29,000

Accumulated depreciation

kitchen equipment (2,050) 26,950 41,800

Total assets $155,466

CCC12 (Continued)

Liabilities and Stockholders Equity

Current liabilities

Accounts payable $ 5,848

Income tax payable 19,690

Dividends payable 700

Salaries and wages payable 2,250

Interest payable 188

Note payablecurrent portion 4,000 $ 32,676

Long-term liabilities

Note payablelong-term portion 6,000

Total liabilities 38,676

Stockholders equity

Paid-in capital

Preferred stock, 2,800 shares issued

and outstanding $ 14,000

Common stock, 25,930 shares issued,

25,180 shares outstanding 25,930 39,930

Retained earnings 77,360

Total paid-in capital and retained earnings 117,290

Less: Treasury stock (750 common shares) 500

Total stockholders equity 116,790

Total liabilities and stockholders equity $155,466

3. Recall from Chapter 11 that the company declared a semiannual dividend to the preferred stockholders on April 30, and the dividend was paid on June 1. The second semiannual dividend was declared to the preferred stockholders on October 31, to be paid on December 1.

4. Prepaid expenses relate only to operating expenses.

Instructions

(a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2020, using the indirect method.

(b) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2020, using the direct method.