Question

CASH FLOWS PROBLEM

REQUIRED: Prepare the three sections of the statement of cash flows. Be certain to label all
numbers presented.
The HUBB Corporation has the following information available from the 2020 Income
Statement and the 2019 and 2020 comparative balance sheets:
Sales $ 450,000
COGS - 220,000
GP 230,000
- Oper Exp - 130,000
- Interest Exp -10,000
+ Gain on Sale + 2,000
- Taxes - 32,000
Net Income 60,000

2020 2019
Cash $49,000 $62,000
Acct Receivable 55,000 40,000
Inventory 190,000 175,000
Ppd Insurance -0- 4,000
Fixed Assets
Accumulated Depreciation

200,000
34,000

135,000
30,000
Acct Payable 10,000 12,000
Interest Payable 7,000 2,000
Income Tax Payable 3,000 6,000
Accrued Salary Payable 3,000 2,000
Note Payable 145,000 100,000
Common Stock ($10 par) 140,000 120,000
APIC- C/S 5,000 -0-
Retained Earnings 147,000 144,000
*Purchased new equipment, $10,000.
*purchased new office equipment, $75,000 on a 3-yr note.
*Sold truck (cost $20,000, acc depr of $15,000) for $7,000.
*Paid off $30,000 of Notes Payable.
*Sold 2,000 shares of Common stock.
*Paid dividends.

All long-term assets are listed under the broad account "Fixed Assets"

There was a non-cash transaction - the purchase of equipment entirely on a note- this transaction will have no cash impact on Investing or on Financing at all.

You need to back into Cash from sale of stock. Re-create the stock sale entry for the right cash. You need to back into both depreciation and dividend.

Answer 1

Calculation

Taxes paid
Taxes payable beginning balance	6000
+Taxes for the year	32000
-Taxes payable end balance	3000
Taxes paid	35000
Depreciation
Accumulated depreciation end balance	34000
+Acc depreciation on sold asset	15000
- Acc depreciation beginning balance	30000
Depreciation for the year	19000
Fixed assets
Fixed assets end balance	200000
+ fixed assets sold	20000
-fixed assets beginning balance	135000
Fixed assets purchased	85000
Purchased for cash	10000
Purchased against note	75000
Interest
Interest payable beginning balance	2000
+ interest expense for the year	10000
- interest payable end balance	7000
Interest paid	5000
Note payable
Beginning balance	100000
+ Purchase of asset against note	75000
- end balance	145000
Repaid notes payable	30000
Dividends
Retained earnings beginning balance	144000
+ net income	60000
-retained earnings end balance	147000
Dividends paid	57000

If interest is considered as operating activity

Cash flow statement
Indirect method
Cash flow from operating activities
Net income	60000
Add: depreciation	19000
Less: Gain on sale	-2000
Add: taxes	32000
Net change in working capital
increase in Acc rec	-15000
Increase in inventory	-15000
Decrease in prepaid expense	4000
Decrease ina cc payable	-2000
Increase in accrued salaries	1000
Increase in interest payable	5000
Taxes paid	-35000
Net cash flow from operating activity	52000
Cash flow from investing activities
Equipment purchase	-10000
Sale of truck	7000
Net cash flows from financing	-3000
Cash flow from investing activities
Repaid notes payable	-30000
Common stock issued	20000
Additional paid in capital on issued shares	5000
Dividends paid	-57000
Net cash flow from investing	-62000
Net change in cash flow	-13000
Beginning balance	62000
End balance	49000

If interest is not considered as operating activity

Cash flow statement
Indirect method
Cash flow from operating activities
Net income	60000
Add: depreciation	19000
Less: Gain on sale	-2000
Add: interest expense	10000
Add: taxes	32000
Net change in working capital
increase in Acc rec	-15000
Increase in inventory	-15000
Decrease in prepaid expense	4000
Decrease ina cc payable	-2000
Increase in accrued salaries	1000
Taxes paid	-35000
Net cash flow from operating activity	57000
Cash flow from investing activities
Equipment purchase	-10000
Sale of truck	7000
Net cash flows from financing	-3000
Cash flow from investing activities
Interest paid	-5000
Repaid notes payable	-30000
Common stock issued	20000
Additional paid in capital on issued shares	5000
Dividends paid	-57000
Net cash flow from investing	-67000
Net change in cash flow	-13000
Beginning balance	62000
End balance	49000