Question

Condensed financial data of Bonita Company for 2020 and 2019 are presented below. BONITA COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2020 AND 2019 2020 2019 Cash $1,830 $1,180 Receivables 1,710 1,320 Inventory 1,590 1,920 Plant assets 1,890 1,710 Accumulated depreciation (1,220 ) (1,190 ) Long-term investments (held-to-maturity) 1,320 1,440 $7,120 $6,380 Accounts payable $1,190 $890 Accrued liabilities 210 260 Bonds payable 1,400 1,580 Common stock 1,940 1,660 Retained earnings 2,380 1,990 $7,120 $6,380 BONITA COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 Sales revenue $6,720 Cost of goods sold 4,680 Gross margin 2,040 Selling and administrative expenses 920 Income from operations 1,120 Other revenues and gains Gain on sale of investments 80 Income before tax 1,200 Income tax expense 550 Net income 650 Cash dividends 260 Income retained in business $390 Additional information: During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2020. Prepare a statement of cash flows using the direct method.

Answer 1

Answer:

Statement of cash flows for the year ended December 31, 2020

Cash flow from Operating Activities

Income before tax                                                                        1,200

Adjustments for Non - Cash items :

Depreciation (1,220 - 1,190)                                                              30

Gain on sale of investments                                                           (80)

Adjustments to Changes in Working Capital Items :

Increase in Receivables                                                               (390)

Decrease in Inventory                                                                   330

Increase in Accounts payable                                                      300

Decrease in Accrued liabilities                                                     (50)

Cash generated from operations                                                1340

Income tax paid                                                                           ( 550)

Net Cash from Financing Activities                                              790

Cash flow from Investing Activities

Purchase of Plant Assets (180 - 70)                                              (110)

Proceeds from Sale of Investments(1,440 +80 - 1,320)              200

Net Cash from Investing Activities                                                 90

Cash flow from Financing Activities

Repurchase of Bonds (1,580-1,400)                                             (180)

Issue of Common Stock (1940 - 1660 - 70)                                   210

Net Cash from Financing Activities                                                30

Movement during the year                                                           650

Cash and Cash Equivalents at Beginning of the year            1,180

Cash and Cash Equivalents at End of the year                       1,830

Explanation:

The Direct method has been used : This must show adjustment to the Income before interest and tax.

The Statement of Cash flows is prepared under the following headings :

1. Cash flow from Operating Activities
2. Cash flow from Financing Activities
3. Cash flow from Investing Activities