Question

Heads Up Company was started several years ago by two hockey instructors. The company’s comparative balance sheets and income statement follow, along with additional information. Current Year Previous Year Balance Sheet at December 31 Cash $ 6,060 $ 3,920 Accounts Receivable 830 1,610 Equipment 4,730 4,300 Accumulated Depreciation—Equipment (1,360 ) (1,180 ) $ 10,260 $ 8,650 Accounts Payable $ 770 $ 1,200 Salaries and Wages Payable 570 750 Note Payable (long-term) 1,600 500 Common Stock 4,300 4,300 Retained Earnings 3,020 1,900 $ 10,260 $ 8,650 Income Statement Service Revenue $ 40,900 Salaries and Wages Expense 38,400 Depreciation Expense 180 Income Tax Expense 1,200 Net Income $ 1,120 Additional Data: a. Bought new hockey equipment for cash, $430. b. Borrowed $1,100 cash from the bank during the year. c. Accounts Payable includes only purchases of services made on credit for operating purposes. Because there are no liability accounts relating to income tax, assume that this expense was fully paid in cash. Required: 1. Prepare the statement of cash flows for the current year ended December 31 using the direct method.

Answer 1

Statement of cash flows for the current year ended December 31 using the direct method is as shown below:

Heads Up Company
Statement of Cash Flows (Direct Method)
For Year Ending Dec. 31, 20XX
Cash Flow from Direct Operating Activities
	Amount ($)
Cash flows from operating:
Cash received from customers:	41,680
Cash paid to suppliers	-430
Cash paid for Income tax	-1,200
Cash paid for Expenses	-38,580
Net cash flow - operating activities:	1,470
Cash flows from investing:
Purchase of Equipment	-430
Net cash flow - investing activities:	-430
Cash flows from financing:
Bonds issued	1,100
Net cash flow financing activities:	1,100
Net increase in Cash balance	2,140
Cash as of January 1,20XX	3,920
Cash as of December 31, 20XX	6,060

Account Receivable
Particulars	Amount ($)	Particulars	Amount ($)
opening	1,610
Service Revenue	40,900	Cash	41,680
	42,510		41,680
closing	830
Equipment
Particulars	Amount ($)	Particulars	Amount ($)
opening	4,300
Purchase of Equipment	430
closing	4,730
Acc Dep
Particulars	Amount ($)	Particulars	Amount ($)
		opening	1,180
		Dep	180
	0		1360
		closing	1,360
Accounts payable
Particulars	Amount ($)	Particulars	Amount ($)
Cash	430	opening	1,200
	430		1200
		closing	770
Salaries and Wages Payable
Particulars	Amount ($)	Particulars	Amount ($)
Cash	38,580	opening	750
		Salaries and Wages Expense	38,400
	38,580		39,150
		closing	570
Note Payable
Particulars	Amount ($)	Particulars	Amount ($)
		opening	500
		Cash	1,100
	0		1600
		closing	1,600
Common Stock
Particulars	Amount ($)	Particulars	Amount ($)
		opening	4,300
	0		4,300
		closing	4,300
Retained earnings
Particulars	Amount ($)	Particulars	Amount ($)
Dividend	0	opening	1,900
		Net Income	1,120
	0		3,020
		closing	3,020