Part A.

You prepared the balance sheet and income statement of Sunrise Bakery Inc. for the first year of operations. Greg wants to help, but he 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, 2021, 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, 2021 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 that the company originally issued 25,930 common shares for $25,930, of which 750 shares were repurchased from the lawyer for $500.

Sunrise Bakery Inc.

Income Statement

Year Ended October 31, 2022

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

Sunrise Bakery Inc.

Balance Sheet

October 31, 2022

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

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 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

1. Recall 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.
2. Prepaid expenses relate only to operating expenses.

Required for Part A

1. Prepare a statement of cash flows for Sunrise Bakery Inc. for the year ended October 31, 2022, using the indirect method.
2. Prepare a statement of cash flows for Sunrise Bakery Inc. for the year ended October 31, 2022, using the direct method.