Question

Problem 2

Balance Sheet
	Year 2	Year 1
Cash	$ 32	$ 8
Net Accounts Receivable	76	50
DTA - NOL	1.6	12
Furniture	100	100
Accumulated Depreciation	(20)	(5)
Total Assets	$ 189.6	$ 165
Accounts Payable	$ 8	$   10
Deferred Tax Liability	29.6	27
Bank Loan	$ 30	$ 53
Total Liabilities	$ 67.6	$ 90
Common Stock	$   20	$   20
Retained Earnings	102	55
Total Liabilities & Equity	$ 189.6	$ 165
Income Statement
Revenue	$ 500	$ 450
Operating Expense	420	370
Depreciation Expense	15	5
Net Income (Loss) before tax	$ 65	$ 75
Income Tax Expense	13	15
Net Income	52	60

Company paid dividends each year.

Required:

1. Prepare Cash Flow Statement for Year 2
2. Prepare Tax Provision AJE for both years. Note Year 1 was the first year of operations.

	Year 2
	Details	Total
Cash Flow From Operations
Sub Total CFO
Cash Flow From Investing
Sub Total CFI
Cash Flow From Financing
Sub Total CFF
Net Change in Cash
Beginning Cash Balance
Ending Cash Balance

Tax Provision JEs on next page.

Account title	Debit	Credit
Record tax provision for year 1

Account title	Debit	Credit
Record tax provision for year 2

Answer 1

Cash flow statement: Indirect Method
Cash flows from operating activities:	Working	Amount $
Profit before tax (Net Income)	$                  65.00
Adjustments:
Depreciation	$                  15.00
Decrease/(Increase) in Deferred Tax Asset	$                  10.40
(Decrease)/Increase in Deferred Tax liability	$                    2.60
Operating profit from before working capiTotal changes	$                  93.00
Accounts receivable(increase)/decrease	$                (26.00)
Trade payable (decrease)/increase	$                  (2.00)
Cash generation from operation	$                  65.00
Income tax paid	$                (13.00)
Net cash provided by operating activities		$                  52.00
Cash flows from investing activities:
Net proceeds/(Purchase) of Equipment	$                         -
Net proceeds/(Purchase) of Furniture	$                         -
Net cash used in investing activities		$                         -
Cash flows from financing activities:
Net proceeds/(Repayment) of Issue of Common Stock	$                         -
Net proceeds/(Repayment) of bank loan	$                (23.00)
Dividend paid	$                  (5.00)
Interest paid	$                         -
Net cash provided by financing activities		$                (28.00)
Net increase in cash		$                  24.00
Opening Cash balance, Year 2		$                    8.00
Closing Cash balance, Year 2		$                  32.00	##
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	Ledger Working
Retained earning
2019			2019	Opening balance	$                55.00
2019	Dividend Paid	$                   5.00	2019	Net income	$                52.00
2019	Closing balance	$              102.00
		$              107.00			$              107.00