Question

Audio City, Inc., is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below: Current Year Previous Year Balance Sheet at December 31 Cash $ 70,100 $ 73,800 Accounts Receivable 16,600 22,000 Inventory 24,400 22,000 Equipment 231,000 154,000 Accumulated Depreciation—Equipment (66,000 ) (49,000 ) Total Assets $ 276,100 $ 222,800 Accounts Payable $ 8,400 $ 19,800 Salaries and Wages Payable 2,100 1,000 Note Payable (long-term) 62,000 79,000 Common Stock 108,000 74,000 Retained Earnings 95,600 49,000 Total Liabilities and Stockholders’ Equity $ 276,100 $ 222,800 Income Statement Sales Revenue $ 212,000 Cost of Goods Sold 94,000 Other Expenses 66,000 Net Income $ 52,000 Additional Data: Bought equipment for cash, $77,000. Paid $17,000 on the long-term note payable. Issued new shares of stock for $34,000 cash. Dividends of $5,400 were paid in cash. Other expenses included depreciation, $17,000; salaries and wages, $22,000; taxes, $27,000. Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were 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 by a minus sign.)

Answer 1

Answer:

Closing Cash and Cash equivalents balance is $70,100 as per the statement of cash flows presented below in indirect format. the closing figure matches the balance sheet sheet figure of cash and cash equivalents for the current year.

For year reference, solution in excel format is also attached

Explanation:

            Statement of Cash Flows for year ended 31 December 20x1  

 

Net Profit before tax (Net Income + Tax)                $79,000  

Adjustment of Non Cash Expenses:  

   Depreciation                                                        $17,000  

   Increase in Salaries & Wages Payable                $1,100  

 

Working Capital Changes:  

   Increase in Inventory                                         $(2,400)

   Decrease in Accounts Receivables                        $5,400  

   Decrease in Accounts Payable                        $(11,400)

 

Cash generated from Operations                        $88,700  

   Tax Paid                                                                $(27,000)

 

Net cash from operating activities                         $61,700  

 

Cash Flows from Investing Activities:  

     Purchase of equipment                                        $(77,000)

 

Net cash from investing activities                         $(77,000)

 

 

Cash Flows from Financing Activities:

     Proceeds from issue of shares                         $34,000  

     Payment of long term loans                                 $(17,000)

     Dividends paid                                                         $(5,400)

 

Net cash from Financing Activities                          $11,600  

 

Net decrease in cash and cash equivalents          $(3,700)

Opening cash and cash equivalents                         $73,800  

Closing Cash and Cash Equivalents                           $70,100  

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