Question
The 2020 income statement and comparative balance sheet of Stellar Design Ltd. follow: (Click the icon to view the income statement.) (Click the icon to
The 2020 income statement and comparative balance sheet of Stellar Design Ltd. follow: (Click the icon to view the income statement.) (Click the icon to view the balance sheet.) Stellar Design Ltd. had no non-cash financing and investing transactions during 2020. During the year, there were no sales of land or plant and equipment, and no issuances of notes payable. Required 1. Prepare the 2020 cash flow statement by the indirect method. 2. Evaluate the cash flow for this company. i Income Statement Stellar Design Ltd. Cash Flow Statement For the Year Ended August 31, 2020 Cash flows from operating activities Net income Add (subtract) items that affect net income Revenues Sales revenue Interest revenue Stellar Design Ltd. Income Statement For the Year Ended August 31, 2020 $ 261,000 29,000 290,000 and cash flow differently: Amortization expense Increase in accounts receivable Increase in interest receivable Decrease in inventory Increase in prepaid expenses Total revenues Expenses Cost of goods sold $ 80,000 Salaries expense 41,000 Amortization expense 5,400 Other operating expenses 10,500 Increase in accounts payable Interest expense 16,600 Decrease in interest payable 43,000 Decrease in salaries payable Income tax expense 196,500 Decrease in other accrued liabilities Total expenses $ 93,500 Net income Decrease in other accrued liabilities Increase in income tax payable Net cash inflow from operating activities Cash flows from investing activities Acquisition of land Acquisition of equipment Net cash outflow from investing activities Cash flows from financing activities Payment of dividends Payment of notes payable Issuance of common shares Net cash outflow from financing activities Net increase (decrease) in cash Cash and cash equivalents, September 1, 2019 Cash and cash equivalents, August 31, 2020 Stellar Design Ltd. Balance Sheet August 31, 2020 and 2019 2020 2019 Accounts receivable Interest receivable Current assets Cash and cash equivalents $ 9,000 $ 7,700 47,000 42,000 1,900 700 41,000 69,000 4,300 3,800 71,000 63,000 113,000 64,000 Inventory Prepaid expenses Plant and equipment, net Land Total assets Current liabilities Accounts payable $ 287,200 $250,200 $ 37,000 $ 34,200 Interest payable 5,000 6,100 Salaries payable 3,500 8,400 Other accrued liabilities 19,000 24,000 Income tax payable 10,100 8,500 Long-term liabilities Notes payable Shareholders' equity Common shares Retained earnings Total liabilities and shareholders' equity 85,000 110,000 84,000 40,000 43,600 19,000 $ 287,200 $250,200 Requirement 2. Evaluate the cash flow for this company. Stellar Design Ltd.'s 2020 cash flows are negative overall. Operations provided negative cash flows, which is the least important source of cash for a healthy company. Stellar Design Ltd. is investing in common shares and purchasing equipment while using a note payable. All are negative signs
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