Question

Selected financial information for the Bravo Zulu company for the fiscal year ended December 31, 2016 is as follows:

Net Income	$122,500
Depreciation expense	50,000
Purchases of plant assets	125,000
Disposals of plants assets	20,000
Gain on Disposal of plant assets	7,500
Accounts receivable decreased	2,500
Accounts payable decreased	4,000
Interest expense	5,000
Income tax expense	2,500

Additionally, Bravo-Zulu issued stock in exchange for an outstanding note payable of $72,500. The cash balance on January 1, 2016 was $37,000. The January 1, 2016 balance for Retained earnings was $250,000 and the December 31, 2016 balance for Retained Earnings was $342,500. Use this information to prepare Bravo-Zulu Company’s Statement of Cash Flows for the year ended December 31, 2016 using the indirect method.

Answer 1

Zulu company
Cash Flow Statement
For the ended December 31, 2016
Cash Flow from Operating Activities:
Net Income		$         122,500.00
Add: Adjustments
Gain on sale of Equipment	$      (7,500.00)
Depreciation expense	$      50,000.00
Decrease in Accounts Payables	$      (4,000.00)
Decrease in Accounts receivables	$        2,500.00
		$           41,000.00
A. Cash Flow from Operating Activities		$         163,500.00
Cash Flow from Investing Activities:
Disposal of Plant assets	$      20,000.00
Purchase of Plant assets	$ (125,000.00)
B. Cash flow from Investing Activities		$       (105,000.00)
Cash Flow from Financing Activities:
Dividend paid	$    (30,000.00)
C. Cash Flow from Financing Activities		$         (30,000.00)
Increase (Decrease) in cash [A+B+C]		$           28,500.00
Add: cash at the beginning of the year		$           37,000.00
Cash at the end of the year		$           65,500.00

Interest expense and income tax is already adjusted with net income.

Calculation of Dividends paid
Beginning balance of Retained earnings	$ 250,000.00
Add: Net income	$ 122,500.00
Subtotal	$ 372,500.00
Ending balance of Retained earnings	$ 342,500.00
Dividends paid	$    30,000.00

General notes for cash flow

Cash is increased when Current liability increase or Current asset Decrease.

Cash is Decreased when Current liability Decrease or Current asset Increase.

Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash

Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.