The comparative balance sheet and income statement of Sign Language Hearing 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.

Requirements

1. In comparison to investing and financing activities, it is often said that cash from operating activities must be the main source of cash to achieve long term success of the company. Do you agree or disagree with this statement? In your own words, give reason or reasons to support your answer taking into consideration the possible consequences of the cash being provided by any of the other two activities over the long run.
2. 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	200,000	188,000
Accounts Receivable	200,000	230,000
Inventory	380,000	350,000
Equipment, net	252,000	144,000
Total Assets	1,032,000	912,000
Liabilities
Accounts payable	275,000	260,000
Accrued liabilities	75,000	95,000
Income tax payable	55,800	55,800
Bond payable	168,000	106,000
Stockholders' Equity:
Common Stock	104,000	40,000
Retained earnings	454,200	405,200
Treasury stock	(100,000)	(50,000)
Total liabilities and stockholders' equity	1,032,000	912,000

Sign Language Hearing Co Ltd
Income Statement
Year Ended October 31,2021
Revenues and gains:
Sales revenue	795,200
Gain on sale of equipment
Interest revenue
Total revenues and gains		795,200
Expenses
Cost of goods sold	520,500
Salary expense	58,500
Depreciation expense	18,100
Rent expense	35,000
Loss on sale of equipment	15,000
Total expenses		647,100
Income before income taxes		148,100
Income tax expense		25,000
Net Profit		123,100
Notes
Purchase of equipment		181,100
Cash receipt from sale of equipment		40,000
Issuance of bonds payable to borrow cash		62,000
Cash receipt from issuance of common stock		64,000
Dividend paid		74,100
Book value of equipment sold		55,000
Purchase of treasury stock		50,000