Question

Extra Practice #1: (Corrected 4/23 – see below)
REQUIRED: (a) Prepare a Statement of Cash Flows for Burn2, Inc. for the year ended December 31, 2018, using the indirect method; (b) prepare the Operating Activities section using the direct method; and (c) prepare a Schedule for Significant Noncash Transactions if applicable.

Balance Sheets

12/31/18

12/31/17

Cash

605

1,565

Accounts Receivable

342

200

Inventory

760

700

Prepaid Operating Expenses

106

150

Investments

340

0

Patents, net

30

35

Land, Building & Equipment

2,849

1,000

Accumulated Depreciation

(440)

(300)

4,592

3,350

                 ==               

                  ==

Accounts Payable

198

675

Accrued Liabilities

107

290

Utilities Payable

195

125

Unearned Revenue

48

110

Interest Payable

35

20

Notes Payable

200

0

Bonds Payable

449

400

Common Stock

1,455

680

Retained Earnings

1,905

1,050

4,592

3,350

                                                                                                  ==                        ==                        

Income Statement

Year Ended December 31, 2018

Sales

4,000

Cost of Goods Sold

(1,800)

Gross Profit

2,200

Operating Expenses

Depreciation Expense-PPE

(165)

Utilities Expense

(201)

Other Operating Expenses

(134)

(500)

Income from Operations

1,700

Gain (Loss) on Sale of PPE

75

Interest Expense

(60)

15

Income before Tax Expense

1,715

Income Tax Expense

(760)

Net Income

955

Additional Information:

• On January 2, 2018, Burn2 sold equipment costing $65, which had a carrying amount of $40

• Patent amortization is included in other operating expenses.

• Cash dividends were declared and paid in 2018.

• On October 2, 2018, Burn2 issued common stock for cash.

• On March 3, 2018, Burn2 purchased equipment for cash.

• During 2018, Burn2 also purchased equipment land thru the issuance of bonds.

• During 2018, Burn2 purchased available for sale securities.

• Burn2 borrowed $200 in 2018 by signing a long term note.

Answer 1

Indirect Method:-

Cash Flow from Operating Activity :-
Net Income	955
Interest Exp	60
Gain on sale of PPE	(75)
Depreciation	165
Patent Ammortisation	5
Increase A/ Receivable	(142)
Increase Inventory	(60)
Decrease Prepaid Exp	44
Decrease A/c Payable	(477)
Derease Accrued Liab	(183)
Increase Utility Payable	70
Decrease Unearned revenue	(62)
Cash Flow from Operating Activity (A)	300	300
Cash Flow from Investing Activity:-
Sale Equipment (40 + 75{gain on sale})	115
Purchase Investment	(340)
Purchase Equipment (1000{op balance} – 65{cost of equipment sold} – 2849{closing bal}	(1914)
Cash Flow from Investing Activity (B)	(2139)	(2139)
Cash Flow from Financing Activity:-
Int Exp (60 – 15{int payable increase})	(45)
Note Payable	200
Bond Payable	49
Common stock	775
Dividend Paid	(100)
Cash Flow from Financing Activity (C)	879	879
Net cash flow (A+B+C)		(960)
Opening cash balance (31/12/17)		1565
Ending Cash balance (31/12/18)		605

Direct Method :-

Cash Flow from Operating Activity :-
Cash collect from customer (4000{sale} – 142{increase A/c Rec} – 60{increase inventory}	3798
Cash Paid to supplier (1800{COGS} + 477{Decrease A/c payable}	(2277)
Paid operating exp (134 – 5 {Ammortisation patent} – 44 {Decrease prepaid exp}	(85)
Income Tax Paid	(760)
Utility Exp (201 – 70{Increase utility payable}	(131)
Decrease Accrued Liab	(183)
Decrease Unearned revenue	(62)
Cash Flow from Operating Activity (A)	300	300
Cash Flow from Investing Activity:-
Sale Equipment (40 + 75{gain on sale})	115
Purchase Investment	(340)
Purchase Equipment (1000{op balance} – 65{cost of equipment sold} – 2849{closing bal}	(1914)
Cash Flow from Investing Activity (B)	(2139)	(2139)
Cash Flow from Financing Activity:-
Int Exp (60 – 15{int payable increase})	(45)
Note Payable	200
Bond Payable	49
Common stock	775
Dividend Paid	(100)
Cash Flow from Financing Activity (C)	879	879
Net cash flow (A+B+C)		(960)
Opening cash balance (31/12/17)		1565
Ending Cash balance (31/12/18)		605