Question
The comparative balance sheet and income statement of PAJ Co Ltd, have just been prepared and presented to the owners by the companys Accountant. The
The comparative balance sheet and income statement of PAJ Co Ltd, have just been prepared and presented to the owners by the companys Accountant. The owners are concerned about the movement in the companys 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 indirect 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 each student from your accounting course to assist with the needed clarification and have put forward the following financial information
| PAJ Co Ltd | ||
| Comparative Balance Sheet | ||
| December 31, 2020, and 2021 | ||
|
| 2021 | 2020 |
| Assets |
|
|
| Cash and cash equivalent | 275,000 | 320,000 |
| Accounts Receivable | 240,000 | 180,000 |
| Inventory | 220,000 | 240,000 |
| Prepaid expenses | 45,000 | 45,000 |
| Equipment, net | 510,000 | 350,000 |
| Total Assets | 1,290,000 | 1,135,000 |
| Liabilities |
|
|
| Accounts payable | 285,000 | 305,000 |
| Accrued liabilities | 305,000 | 285,000 |
| Bond payable | 205,000 | 145,000 |
| Stockholders' Equity: |
|
|
| Common Stock | 120,000 | 85,500 |
| Retained earnings | 475,000 | 314,500 |
| Treasury stock | (100,000) | - |
| Total liabilities and stockholders' equity | 1,290,000 | 1,135,000 |
| PAJ Co Ltd | ||
| Income Statement | ||
| Year Ended December 31,2021 | ||
| Revenues and gains: |
|
|
| Sales revenue | 950,000 |
|
| Gain on sale of equipment | 10,000 |
|
| Total revenues and gains |
| 960,000 |
| Expenses |
|
|
| Cost of goods sold | 450,000 |
|
| Salary expense | 105,000 |
|
| Depreciation expense | 26,000 |
|
| Rent expense | 155,500 |
|
| Total expenses |
| 736,500 |
| Income before income taxes |
| 223,500 |
| Income tax expense |
| 38,900 |
| Net Profit |
| 184,600 |
| Notes | ||
| Purchase of equipment | 286,000 | |
| Cash receipt from sale of equipment | 110,000 | |
| Issuance of bonds payable to borrow cash | 60,000 | |
| Cash receipt from issuance of common stock | 34,500 | |
| Dividend paid | 24,100 | |
| Book value of equipment sold | 100,000 | |
| Purchase of treasury stock | 100,000 | |
|
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|
|
|
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|
|
- Prepare a complete statement of cash flows for December 2021 using the indirect method based on the information and guidance provided above.
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