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The following is an excerpt of the comparative balance sheets of Smart Engineering Company (SEC') as at 31 December 20X1 and 20X0: 31 Dec 20X1
The following is an excerpt of the comparative balance sheets of Smart Engineering Company (SEC') as at 31 December 20X1 and 20X0: 31 Dec 20X1 20x0 Current assets: $'thousand $'thousand Cash and cash equivalents 485 83 Accounts receivable 312 357 Inventories 180 65 Prepaid expenses 25 12 Current liabilities: Accounts payable 278 105 Unearned revenue 337 154 Dividend payable 30 40 In addition, during the year ended 31 December 20X1, SEC recorded the following transactions: $265,000 $17,000 $154,000 Cash purchase of office furniture Depreciation expense Issuance of long-term debt Purchase of treasury shares Proceeds from sale of equipment Gain on sale of equipment Net income $79,000 $175,000 $62,000 $87,000 $40,000 Payment of cash dividend Required: 1 Prepare SEC's statement of cash flows for the year ended 31 December 20X1 using the available data. Use the indirect method to report cash flows from operating activities. (18 marks) 2 The cash balance of SEC increased a lot from the end of 20X0 to 20X1. Do you think the cash flow of SEC is healthy? Comment on the cash flow situation of SEC, stating two observations in your analysis of the cash flow of SEC. (7 marks)
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