Question

The following are relevant account balances from ABC’s comparative balance sheet and 2019 income statement.

            ABC’s balance sheets:

	December 31, 2019	January 1, 2019
Cash	$    6,000	$     9,000
Accounts receivable	8,000	12,000
Merchandise inventory	29,000	18,000
Prepaid rent	6,000	4,000
Equipment	100,000	80,000
Accumulated depreciation	(28,000)	(13,000)
Total assets	$121,000	$110,000
Accounts payable	$    9,000	$   25,000
Unearned Revenue	6,000	4,000
Common stock	38,000	32,000
Retained earnings	68,000	49,000
Total liabilities and shareholders’ equity	$121,000	$110,000

Other information: No equipment was sold or retired during 2019. ABC’s net income for 2019 was $33,000.

Prepare the statement of cash flow for 2019.

Answer 1

Cashflow from operations:
Net income	$   33,000
Add: Depreciation	$   15,000
Add: Decrease in account receivables	$      4,000
Less: Increase in inventory	$ (11,000)
Less: Increase in prepaid rent	$   (2,000)
Less: Decrease in account payables	$ (16,000)
Add: Increase in unearned revenue	$      2,000
Cashflow from operations	$   25,000
Cashflow from investing activities
Purchase of Equipment	$ (20,000)
Cashflow from financing activities:
Issue of common stock	$      6,000
Dividend paid(49000+33000-68000)	$ (14,000)
Net cash flows	$   (3,000)
Add: opening cash balance	$      9,000
Closing cash balance	$      6,000