Question

Consultex, Inc. was founded in 2012 as a small financial consulting business. The company had done reasonably well in 2012–2014 but started noticing its cash dwindle early in 2015. In January 2015, Consultex had paid $20,500 to purchase land and repaid $2,000 principal on an existing promissory note. In March, the company paid $2,900 cash for dividends and $1,000 to repurchase and eliminate Consultex stock that had previously been issued for $1,000. To improve its cash position, Consultex borrowed $5,900 by signing a new promissory note in May and also issued stock to a new private investor for $12,900 cash. Year-end comparative balance sheets and income statements are presented below. CONSULTEX, INC. Balance Sheet October 31 2015 2014 Assets Cash $ 9,570 $ 15,800 Accounts Receivable 15,800 12,900 Prepaid Rent 2,450 3,900 Land 30,500 10,000 Total Assets $ 58,320 $ 42,600 Liabilities and Stockholders’ Equity Salaries and Wages Payable $ 2,450 $ 3,900 Income Taxes Payable 1,000 1,000 Notes Payable (long-term) 16,800 12,900 Common Stock 21,800 9,900 Retained Earnings 16,270 14,900 Total Liabilities and Stockholders’ Equity $ 58,320 $ 42,600 CONSULTEX, INC. Income Statement For the Year Ended October 31 2015 2014 Sales Revenue Salaries and Wages Expense $ 162,500 $ 165,500 Rent Expense 98,900 97,900 Prepaid Rent 36,900 30,900 Utilities Expenses 20,600 20,900 Income before Income Tax Expense $ 6,100 $ 15,800 Income Tax Expense 1,830 4,740 Net Income 4,270 11,060 Required: Prepare a properly formatted Statement of Cash Flows for Consultex, Inc. for the year ended October 31, 2015 (using the indirect method). (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Consultex, Inc. Statement of Cash Flows For the year ended October 31, 2015 (using the indirect method)
Cash Flow from operating activity
Net Income		4270
Adjustment to reconcile net income to cash flow
Increase in accounts receivable [15800-12900\	(2900)
Decrease in prepaid rent [2450-3900]	1450
Decrease in Salaries and Wages Payable [2450-3900]	(1450)	(2900)
Net cash flow from operating activity		1370
cash flow from Investing activity
Purchase of land	(20500)
Net cash used by investing activity		(20500)
Cash flow from financing activity
Payment of note payable	(2000)
Dividend paid	(2900)
Purchase of treasury stock	(1000)
Issue of note payable	5900
Issue of common stock	12900
Net cash flow from financing activity		12900
Net Increase/(decrease) in cash		(6230)
Beginning cash balance		15800
cash at end		9570