Question

The income statement, balance sheets, and additional information for Communication Accessories are provided.

                                       Communication Accessories

                                                Income Statement

                              For the Year Ended December 31, 2021

Revenues		$2,800,000
Gain on sale of land		4,000
Total revenues		2,804,000
Expenses:
Cost of goods sold	1,900,000
Operating expenses	575,000
Depreciation expense	38,000
Interest expense	16,000
Income tax expense	63,000
Total expenses		2,592,000
Net Income		$212,000

                                       Communication Accessories

                                                   Balance Sheets

                                                    December 31

Assets	2021	2020
Current Assets:
Cash	$182,000	$187,000
Accounts receivable	83,000	95,000
Inventory	121,000	138,000
Prepaid rent	7,000	5,000
Long-Term Assets:
Investment in stock	195,000	100,000
Land	230,000	260,000
Equipment	305,000	225,000
Accumulated depreciation	(138,000)	(100,000)
Total Assets	$985,000	$910,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$40,000	$58,000
Interest payable	1,000	2,000
Income tax payable	12,000	10,000
Long-Term Liabilities:
Notes payable	285,000	205,000
Stockholders' Equity:
Common stock	350,000	350,000
Retained earnings	297,000	285,000
Total Liabilities and Equity	$985,000	$910,000

Additional Information for 2021:

1. Purchase additional investment in stocks for $95,000.

2. Sell land costing $30,000 for $34,000 resulting in a $4,000 gain on sale of land.

3. Purchase $80,000 in equipment by borrowing $80,000 with a note payable due in three years. No cash is exchanged in the transaction.

4. The company declares and pays a cash dividend of $200,000.

Required:

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

Answer 1

Communication Accessories
Statement of Cash Flows
For the year Ended December 31, 2021
Cash flows from operating Activities:
Net income		212,000
Adjustments to reconcile net income to net cash provided by operating activities :
Depreciation Expense	38,000
Decrease in Accounts Receivable	12,000
Decrease in Inventory	17,000
Increase in Prepaid rent	-2,000
Decrease in Accounts Payable	-18,000
Decrease in Interest payable	-1,000
Increase in Income tax payable	2,000
Gain on sale of land	-4,000
		44,000
Net cash provided by operating activities		256,000
Cash flows from Investing activities:
Sale of land	34,000
Purchase of investments	-95,000
Net cash used in investing activities		-61,000
Cash flows from Financing Activities:
Payment of dividends	-200,000
Net cash used by financing activities		-200,000
Net Increase (decrease) in cash		-5,000
Cash at beginning of year		187,000
Cash at ending of year		182,000
Notes:
Schedule of Non cash investing and financing activities
Acquire Equipment by borrowing of Notes payable	80000