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Villa Corporation (VC) is a private company that follows ASPE. The company’s policy is to report...

Villa Corporation (VC) is a private company that follows ASPE. The company’s policy is to report all cash flows arising from interest and dividends as operating activities. The company’s activities for the year ended December 31, 2020 included the following:

VC reported income before income taxes of $400,000. Income tax expense was $50,000.

Retained earnings increased by $340,000 for the year; the dividends payable account increased by $5,000.

Income taxes payable increased by 2,000 during the year.

Interest expense for the year was $20,000; the interest payable account increased by $12,000.

Accounts receivable decreased by $18,000 and accounts payable increased by $40,000 during the year.

Inventory increased by $14,000 during the year.

VC sold equipment with a net book value of $40,000 for $42,000 cash.

VC sold a long-term investment for $12,000; the book value of the investment was $15,000.

Depreciation expense for the year totaled $22,000.

VC recorded a goodwill impairment loss of $15,000 during the year.

VC acquired $200,000 in equipment by way of a $20,000 cash down payment and a $180,000 loan from its local bank.

Required:

Prepare the cash flows from operating activities section of the Cash Flow Statement for Villa Corporation for the year ended December 31, 2020 using the indirect method.

For each activity described in this question that is not classified as an operating activity, explain how the activity and the related cash flow would be reported in Villa Hospitality’s Cash Flow Statement.

Cash Flow Statement (Partial)

For the Year Ended December 31, 2020 (Indirect Method)

Net Cash Flow from Operating Activities

Expert Solution

Cash Flow Statement (Partial)
For the year ended December 31, 2020 Indirect Method
Particulars	Calculation		Amount
Cash Flow from Operating Activities
Income before income taxes		400,000.00
Income tax expense		(50,000.00)
Dividends	400000-50000-340000	10,000.00
Net Income			360,000.00
Adjustments to Net Income:
Increase in Dividend Payable		5000
Increase in Income Tax Payable		2000
Increase in Interest Expense Payable		12000
Decrease in Accounts Receivable		18000
Increase in Accounts Payable		40000
Increase in Inventory		-14000
Gain on sale of equipment	`-42000+40000	-2000
Loss on sale of investment	15000-12000	3000
Depreciation Expense		22000
Goodwill impairment loss		15000
Total Net Adjustments			101,000.00
Net Cash flow from operating activities			461,000.00

Cash Flow from Investing Activities
Sale of Equipment		42,000.00
Sale of long term investment		15,000.00
Equipment Purchases in cash		(200,000.00)
Net Cash Flow used in Investing Activities			(143,000.00)

Cash Flow from Financing Activities
Loan from local bank for payment of equipment purchase		180,000.00
Net Cash flow from financing activities			180,000.00

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