Question

Buffalo Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

BUFFALO INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
		12/31/17			12/31/16
Cash		$6,100			$7,100
Accounts receivable		62,400			51,000
Short-term debt investments (available-for-sale)		34,700			18,100
Inventory		40,400			60,300
Prepaid rent		4,900			4,000
Equipment		154,100			130,600
Accumulated depreciation—equipment		(34,900	)		(24,800	)
Copyrights		46,400			49,800
Total assets		$314,100			$296,100
Accounts payable		$46,500			$40,200
Income taxes payable		4,000			6,000
Salaries and wages payable		8,100			4,100
Short-term loans payable		7,900			10,100
Long-term loans payable		59,600			68,400
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		58,000			37,300
Total liabilities & stockholders’ equity		$314,100			$296,100

BUFFALO INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017
Sales revenue				$339,800
Cost of goods sold				176,500
Gross profit				163,300
Operating expenses				120,500
Operating income				42,800
Interest expense		$11,300
Gain on sale of equipment		2,000		9,300
Income before tax				33,500
Income tax expense				6,700
Net income				$26,800

Additional information:

1.		Dividends in the amount of $6,100 were declared and paid during 2017.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $20,100 and was 70% depreciated was sold during 2017.

Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

WN 1 - Working for cash paid for operating expenses

Operating expenses	$   120,500
Less: Depreciation expense (34900+(20100*70%)-$24800)	$   (24,170)
Less: Amortization expense (49800-46400)	$     (3,400)
Less: Increase in salaries and wages payable	$     (4,000)
Add: Increase in prepaid rent	$           900
Cash paid for operating expense	$     89,830

BUFFALO INC.
Statement of Cash flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers		$    328,400	339800+51000-62400
Cash paid to suppliers	$ (150,300)		176500+40200-46500+40400-60300
Cash paid for operating expenses (WN 1)	$    (89,830)
Cash paid for interest expenses	$    (11,300)
Cash paid for income tax expenses	$       (8,700)		6700+6000-4000
		$ (260,130)
Net cash cash flow from operating activities		$       68,270
Cash flows from investing activities
Cash paid for purchase of equipment	$    (43,600)		130600-154100-20100
Cash paid to purchase short term investments	$    (16,600)		18100-34700
Cash received from sale of equipment	$         8,030		(20100*30%)+2000
Net cash flow used by investing activities		$    (52,170)
Cash flows from financing activities
Cash paid for dividends	$       (6,100)
Cash paid to retire short term note payable	$       (2,200)
Cash paid to retire long term note payable	$       (8,800)
Net cash flow used by financing activities		$    (17,100)
Change in cash		$       (1,000)
Cash and cash equivalents at beginning of period		$         7,100
Cash and cash equivalents at end of period		$         6,100

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