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.

Financial info to be used:

Sign Language Hearing Co Ltd

Comparative Balance Sheet

October 31, 2020, and 2021

2021 2020

Assets

Cash and cash equivalent 350,000 450,000

Accounts Receivable 440,850 -

Inventory 225,222 315,898

Prepaid expenses 185,000 185,000

Equipment, net 668,500 495,880

Total Assets 1,869,572 1,446,778

Liabilities

Accounts payable - 198,500

Accrued liabilities 225,550 190,545

Bond payable 555,840 365,520

Stockholders' Equity:

Common Stock 245,600 145,600

Retained earnings 1,037,582 711,613

Treasury stock (195,000) (165,000)

Total liabilities and stockholders' equity 1,869,572 1,446,778

Sign Language Hearing Co Ltd

Income Statement

Year Ended October 31,2021

Revenues and gains:

Sales revenue 1,500,000

Gain on sale of equipment 28,000

Interest revenue

Total revenues and gains 1,528,000

Expenses

Cost of goods sold 704,500

Salary expense 185,000

Depreciation expense 40,000

Rent expense 200,000

Total expenses 1,129,500

Income before income taxes 398,500

Income tax expense 44,500

Net Profit 354,000

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

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.