Question

Siliconia Manufacturing Ltd. had retained earnings of $400,000 and $50,000 in cash on January 1st, 2018. Net income in 2018 was $200,000 after deducting an amortization expense of $125,000. The non-cash working capital in 2018 are as follow:

Accounts receivable has increased by $10,000,

            Inventory has decreased by $5,000.

          Prepaid expenses have increased by $ 1000,

            Accounts payable has increased by $4500

            Tax payable has decreased by $ 3000  

     In 2018, the company issued additional common shares for $500,000 and borrowed $600,000 from the bank. Paid divided worth of $10,000.

Required:

a. Calculate the cash from/used in the operation.

b. Calculate the cash from/used in the financing activities.

Answer 1

Answer :

a. Calculate the cash from/used in the operation.

Particulars	Amount (in $)
Net income	200,000
Add : Amortization expense	125,000
Less : Increase in Accounts receivable	10,000
Add : Decrease in Inventory	5,000
Less : Increase in Prepaid expenses	1,000
Add : Increase in Accounts payable	4,500
Less : Decrease in tax payable	3,000
Net cash flow from operations	320,500

b. Calculate the cash from/used in the financing activities.

Particulars	Amount (in $)
Issue additional common shares	500,000
Borrow from bank	600,000
Paid dividend	(10,000)
Net cash from the financing activities	1,090,000

Note :

1. Retained earnings are not part of cash flow ststements.

2. Opening cash is not takn into consideration beacuse cash from operations and financing are calculated seperately.