Question

The income statement, balance sheets, and additional information for Virtual Gaming Systems are provided.

VIRTUAL GAMING SYSTEMS Income Statement For the Year Ended December 31, 2018

Net sales $ 2,560,000 Gain on sale of land 5,000 Total revenues 2,565,000

Expenses: Cost of goods sold $ 1,630,000 Operating expenses 611,000 Depreciation expense 29,000 Interest expense 30,000 Income tax expense 76,000 Total expenses 2,376,000 Net income $ 189,000

VIRTUAL GAMING SYSTEMS Balance Sheets December 31
	2018		2017
Assets
Current assets:
Cash	$	331,240	$	269,880
Accounts receivable		68,400		84,000
Inventory		154,000		141,000
Prepaid rent		4,360		6,720
Long-term assets:
Investments		191,000		100,000
Land		213,000		266,000
Equipment		242,000		216,000
Accumulated depreciation		(137,000)		(108,000)
Total assets	$	1,067,000	$	975,600
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	33,000	$	94,000
Interest payable		4,600		3,600
Income tax payable		23,400		27,000
Long-term liabilities:
Notes payable		257,000		231,000
Stockholders' equity:
Common stock		416,000		360,000
Retained earnings		333,000		260,000
Total liabilities and stockholders’ equity	$	1,067,000	$	975,600

Additional Information for 2018:

1. Purchase additional investment in stocks for $91,000.

2. Sell land costing $53,000 for $58,000, resulting in a $5,000 gain on sale of land.

3. Purchase $26,000 in equipment by borrowing $26,000 with a note payable due in three years. No cash is exchanged in the transaction.

4. Declare and pay a cash dividend of $116,000.

5. Issue common stock for $56,000.

  
Required:

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note

Answer 1

	Virtual Gaming Systems
	Cash flow from operating activities
	Net income					189,000
	Adjusments to reconcile net income to
	net cash flows from operating activities
	Depreciation expense					29,000
	Gain (on sale of land)					-5000
	Decrease in accounts payable					-61000
	Increase in Inventory					-13000
	Decrease in prepaid rent					2360
	Decrease in accounts receivable					15600
	increase in interest payable					1000
	Decrease in income tax payable					-3,600
						154,360
	Net cash flows from operating activities						154,360
	Cash flow from Investing Activities
	Sale of land					58,000
	purchase investment in stock					-91,000
	Net cash flows from investing activities						-33,000
	Net cash flows from financing activities
	payment of cash dividends					-116,000
	issue common stock					56,000
	Net cash flows from financing activities						-60,000
	Net increase in cash						61,360
	Cash at the beginning of the period						269,880
	Cash at the end of period						331,240
	Note:Noncash Activities
	purchase equipment using a note payable						26,000