Question

Headland Inc., a greeting card company, had the following statements prepared as of December 31, 2020.

HEADLAND INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2020 AND 2019
		12/31/20			12/31/19
Cash		$6,100			$6,900
Accounts receivable		62,500			51,000
Short-term debt investments (available-for-sale)		34,800			18,100
Inventory		39,600			60,200
Prepaid rent		4,900			4,000
Equipment		154,500			130,100
Accumulated depreciation—equipment		(34,800	)		(25,300	)
Copyrights		46,300			50,400
Total assets		$313,900			$295,400
Accounts payable		$46,000			$40,200
Income taxes payable		4,000			6,000
Salaries and wages payable		8,100			4,000
Short-term loans payable		8,000			10,000
Long-term loans payable		59,700			69,000
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		58,100			36,200
Total liabilities & stockholders’ equity		$313,900			$295,400

HEADLAND INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2020
Sales revenue				$339,075
Cost of goods sold				175,000
Gross profit				164,075
Operating expenses				119,900
Operating income				44,175
Interest expense		$11,300
Gain on sale of equipment		2,000		9,300
Income before tax				34,875
Income tax expense				6,975
Net income				$27,900

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2020.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $19,900 and was 70% depreciated was sold during 2020.

Prepare a statement of cash flows using the direct method. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

HEADLAND INC. Statement of Cash Flows

Answer 1

Headland Inc				Workings:
CASH FLOW STATEMENT				Calculation :
FOR THE YEAR ENDED DECEMBER 31, 2020				Cash collected from customers
Cash Flow from Operating Activities				Beginning AR	$51,000
Receipts form customers		$327,575		+ Sales	$339,075
Cash payment to suppliers	-$148,600			- Ending AR	-$62,500
Cash paid for operating exp.	-$89,170				$327,575
Cash payment for interest	-$11,300
Cash paid for inc. taxes	-$8,975			Purchase from suppliers
Net cash provided by operations		$69,530		- Beginning Inventory	-$60,200
				+ cost of goods sold	$175,000
Cash Flow from Investing Activities				+ Ending Inventory	$39,600
Sale of equipment	$7,970				$154,400
Purchase of equipment	-$44,300
Purchase of investment	-$16,700			Cash paid for suppliers
Net cash flow from investing activities		-$53,030		Beginning AP	$40,200
Cash Flow from Financing Activities				+ purchase from suppliers	$154,400
Payment of short-term loan	-$2,000			- Ending AP	-$46,000
Payment of long-term loan	-$9,300				$148,600
Dividends payments	-$6,000
Net cash flow from financing activities		-$17,300		Cash paid for operating expenses:
Net increase/decrease in cash held		-$800		+ Beginning salaries payable	$4,000
Cash at the beginning of the year		$6,900		+ Operating expenses (119,900 - 24,430 - 3,100)	$92,370
Cash at the end of the year		$6,100		- Ending expenses payable	-$8,100
				- Beginning prepaid rent	-$4,000
				+ Ending prepaid rent	$4,900
					$89,170