Question
Scenario: The comparative balance sheet and income statement of Sigh Language Hearing Co Ltd, have just been prepared and presented to the owners by the
Scenario:The comparative balance sheet and income statement of Sigh Language Hearing Co Ltd, have just been prepared and presented to the owners by the company's Accountant. Yhe owners are concerned about the movement in the company's cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the i direct method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. The owners have asked you to assist with the needed clarification and have put forward the following financial information. Financial information to be used:
Sign Language Hearing Co Ltd
Comparative Balance Sheet
October 31, 2020, and 2021
2021
2020
Assets
Cash and cash equivalent
188,000
200,000
Accounts Receivable
230,000
200,000
Inventory
350,000
380,000
Equipment, net
350,000
220,000
Total Assets
1,118,000
1,000,000
Liabilities
Accounts payable
260,000
275,000
Accrued liabilities
95,000
75,000
Income tax payable
65,400
65,400
Bond payable
195,200
105,600
Stockholders' Equity:
Common Stock
155,500
95,300
Retained earnings
650,450
550,300
Treasury stock
(303,550)
(166,600)
Total liabilities and stockholders' equity
1,118,000
1,000,000
Sign Language Hearing Co Ltd
Income Statement
Year Ended October 31,2021
Revenues and gains:
Sales revenue
800,000
Gain on sale of equipment
5,000
Total revenues and gains
805,000
Expenses
Cost of goods sold
480,000
Salary expense
58,500
Depreciation expense
20,000
Rent expense
65,000
Total expenses
623,500
Income before income taxes
181,500
Income tax expense
18,000
Net Profit
163,500
Notes
Purchase of equipment
337,620
Cash receipt from sale of equipment
153,000
Issuance of bonds payable to borrow cash
190,320
Cash receipt from issuance of common stock
100,000
Dividend paid
28,031
Book value of equipment sold
125,000
Purchase of treasury stock
30,000
Requirement:
prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.
Sign Language Hearing Co Ltd | ||
Comparative Balance Sheet | ||
October 31, 2020, and 2021 | ||
| 2021 | 2020 |
Assets |
|
|
Cash and cash equivalent | 188,000 | 200,000 |
Accounts Receivable | 230,000 | 200,000 |
Inventory | 350,000 | 380,000 |
Equipment, net | 350,000 | 220,000 |
Total Assets | 1,118,000 | 1,000,000 |
Liabilities |
|
|
Accounts payable | 260,000 | 275,000 |
Accrued liabilities | 95,000 | 75,000 |
Income tax payable | 65,400 | 65,400 |
Bond payable | 195,200 | 105,600 |
Stockholders' Equity: |
|
|
Common Stock | 155,500 | 95,300 |
Retained earnings | 650,450 | 550,300 |
Treasury stock | (303,550) | (166,600) |
Total liabilities and stockholders' equity | 1,118,000 | 1,000,000 |
Sign Language Hearing Co Ltd | ||||||||||||||||||||||||||
Income Statement | ||||||||||||||||||||||||||
Year Ended October 31,2021 | ||||||||||||||||||||||||||
Revenues and gains: |
|
| ||||||||||||||||||||||||
Sales revenue | 800,000 |
| ||||||||||||||||||||||||
Gain on sale of equipment | 5,000 |
| ||||||||||||||||||||||||
Total revenues and gains |
| 805,000 | ||||||||||||||||||||||||
Expenses |
|
| ||||||||||||||||||||||||
Cost of goods sold | 480,000 |
| ||||||||||||||||||||||||
Salary expense | 58,500 |
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Depreciation expense | 20,000 |
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Rent expense | 65,000 |
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Total expenses |
| 623,500 | ||||||||||||||||||||||||
Income before income taxes |
| 181,500 | ||||||||||||||||||||||||
Income tax expense |
| 18,000 | ||||||||||||||||||||||||
Net Profit |
| 163,500 | ||||||||||||||||||||||||
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Requirement:
prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.
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