Question

QUESTION 3
Part A: Ranier Ltd. has just completed its first year of operations on December 31, 20X1. Net income for the year was $570. During the year, equipment costing $800 was purchased when the company paid cash of $640 and issued common shares worth $160. Near the end of the year, equipment costing $60 with accumulated depreciation of $16 was sold for $54. At the end of the year, accounts receivable was $250, accounts payable was $36 and accumulated depreciation was $144. A bank loan of $140 was received during the year to help finance operations. At the end of the year, the bank had been paid $52 including $14 of interest. Based on the above information, please prepare the statement of cash flows for the year ended December 31, 20X1 using the indirect method.
Part B: How does the information in the statement of cash flows help the user of the financial statement?

Answer 1

PART A

	Cash flow statement using indirect method
	Particulars	$	$
A	Cash flow from operating activities
	Net income		$   570.00
	Add: Non-operating/non cash expenses
	accumulated depreciation	$   144.00	$   144.00
	less: Non-operating/Non cash incomes
	Gain on sale of equipment	$   -10.00	$   -10.00
	Changes in current assets and current liabilities
	Add:Increase in account payables	$     36.00
	less: Increase in account receivable	$ -250.00	$ -214.00
	Cash flow from operating activities		$   490.00
B	Cash flow from financing activities
	Receipt of bank loan		$   140.00
	Repayment of bank loan		$   -38.00
	Interest paid		$   -14.00
	Cash flow from financing activities		$     88.00
C	Cash flow from investing activities
	Purchase of equipment		$ -640.00
	Sale of equipment		$     54.00
	Cash flow from investing activities		$ -586.00
D	Total cash flow (A+B+C)		$     -8.00