Question

The financial statements of Lewis Limited appear below:

LEWIS LIMITED

Comparative statement of financial positions

31 December

                                                                                                                        2020                 2019   

Assets

Cash                                                                                                     $ 44,000             $ 23,000

Accounts receivable    26,000                34,000

Merchandise inventory 20,000                15,000

Property, plant, and equipment 50,000                78,000

Accumulated depreciation   (20,000) (24,000)

         Total                                                                                          $120,000             $126,000

Liabilities and equity

Accounts payable                                                                      $ 15,000             $ 23,000

Income taxes payable                                                                  13,000                  8,000

Notes payable 7,000                33,000

Ordinary shares    41,000                24,000

Retained earnings    44,000                 38,000

         Total $120,000    $126,000

LEWIS LIMITED

Income statement

for the year ended 31 December 2020

Sales                                                                                                                                   $350,000

Cost of sales                                                                                                                       280,000

Gross profit 70,000

Selling expenses $20,000

Administrative expenses                                                                    16,000           36,000

Income from operations 34,000

Interest expense                                                                                                                    4,000

Income before income taxes 30,000

Income tax expense                                                                                                            10,000

Profit after income tax                                                                                                   $ 20,000

The following additional data were provided:

1. Dividends declared and paid were $14,000.
2. During the year equipment was sold for $12,000 cash. This equipment cost $28,000 originally and had a carrying amount of $12,000 at the time of sale.
3. All depreciation expense is in the selling expense category.
4. All sales and purchases are on account.
5. Accounts payable pertain to merchandise suppliers.
6. All operating expenses except for depreciation were paid in cash.

Required:

Prepare a statement of cash flows for Lewis Limited using the direct method.

Answer 1

Solution:
	Statement of Cash Flows - Direct Method
	© www.excel-skills.com	Amount
	Cash flows from operating activities
	Cash Receipts:
	Cash receipts from customers (Wn1)	$      3,58,000
	Cash Payments:
	Cash paid for Cost of Service (WN2)	$    -2,93,000
	Cash Paid for Selling Expenses (WN 3)	$         -8,000
	Cash paid for admistrative expenses	$       -16,000
	Cash paid for interest expesnes	$         -4,000
	Cash paid for income tax expenses (10,000 - $ 5,000 (increase in Payable))	$         -5,000
	Net cash from operating activities		$      32,000
	Cash flows from investing activities
	Sale of Equipment	$         12,000
	Net cash used in investing activities		$      12,000
	Cash flows from financing activities
	Repayment of Notes Payable	$       -26,000
	Issue of Ordiary Shares	$         17,000
	Cash Dividend Paid	$       -14,000
	Net cash used in financing activities		$     -23,000
	Net increase in cash and cash equivalents		$      21,000
	Cash and cash equivalents at beginning of period		$      23,000
	Cash and cash equivalents at end of period		$      44,000
	Working notes: 1
	Calculation of cash collection from customer
	Sales	$           3,50,000
	Add: Opening AR	$              34,000
	Less: Closing AR	$              26,000
	Cash Collected	$           3,58,000
	Working notes: 2
	Calculation of purhcase of inventory
	Cost of Sales	$           2,80,000
	Add: Closing inventory	$              20,000
	Less : Opening Inventory	$              15,000
	Material Purhcased	$           2,85,000
	Calculation of amount paid to supplied
	Op. Balance of Acct Payable	$              23,000
	Add: Purchases	$           2,85,000
	Less: Cl. Balance of Account payable	$              15,000
	Cash paid	$           2,93,000
	Working notes: 3
	Cash paid for selling expenses
	Selling Expenses	$              20,000
	Less: Depreciation Expenses	$              12,000
	Net Cash Paid	$                 8,000
	Caclulation of Depreciation
	Ending Balance of Accumulated Depreciation		$           20,000
	Less:
	Beginning Balance of Accum Depreciation	$              24,000
	Less: Accumulated depreciation on sale of Equipment	$              16,000	$             8,000
	Depreciation of the year		$           12,000