Question

Heads Up Company was started several years ago by two hockey instructors. The company’s comparative balance sheets and income statement follow, along with additional information. Current Year Previous Year Balance Sheet at December 31 Cash $ 6,300 $ 4,500 Accounts Receivable 1,000 1,950 Equipment 6,600 6,000 Accumulated Depreciation—Equipment (1,700 ) (1,350 ) $ 12,200 $ 11,100 Accounts Payable $ 500 $ 1,100 Salaries and Wages Payable 400 750 Note Payable (long-term) 1,500 500 Common Stock 6,000 6,000 Retained Earnings 3,800 2,750 $ 12,200 $ 11,100 Income Statement Sales Revenue $ 39,500 Salaries and Wages Expense $ 37,000 Depreciation Expense 350 Income Tax Expense 1,100 Net Income $ 1,050 Additional Data: Bought new hockey equipment for cash, $600. Borrowed $1,000 cash from the bank during the year. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that this expense was fully paid in cash. Required: 1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated with a minus sign.

Answer 1

SOLUTION

Cash flow statement-

Particulars	Amount ($)	Amount ($)
Cash flow from Operating Activities
Net income		1,050
Adjustements to reconcile net income to net cash provided by operating activties-
Depreciation expense	350
Decrease in accounts receivable (1,950-1,000)	950
Decrease in accounts payable (1,100-500)	(600)
Decrease in salaries and wages payable (750-400)	(350)	350
Net cash provided by operating activities (A)		1,400
Cash flow from Investing Activities
Purchase of equipment	(600)
Net cash used in investing activities (B)		(600)
Cash flow from Financing Activities
Cash proceeds from bank loan	1,000
Net cash provided by financing activities (C)		1,000
Net increase in cash		1,800
Add: Beginning cash balance		4,500
Endinh cash balance		6,300