Question

Marchant Ltd. reported the following abbreviated statement of financial position and statement of income for 2020.

MARCHANT LTD. Comparative Statement of Financial Position
		Dec. 31, 2020		Dec. 31, 2019
Cash		$55,000		$67,000
Accounts receivable		120,000		144,000
Inventory		319,000		283,000
Property, plant, and equipment		695,000		657,000
Less: Accumulated depreciation		(262,000	)	(230,000	)
Total assets		$927,000		$921,000
Accounts payable		$80,000		$85,400
Wages payable		7,000		10,200
Loan payable		345,270		409,400
Common shares		206,000		152,000
Retained earnings		288,730		264,000
Total liabilities and shareholders’ equity		$927,000		$921,000

MARCHANT LTD. Statement of Income For the year ended December 31, 2020
Sales revenue				$448,000
Cost of goods sold				242,000
Gross profit				206,000
Other expenses:
Supplies expense		$14,000
Depreciation expense		32,000
Wages expense		101,000
Other operating expenses		5,000
Interest expense		25,000		177,000
				29,000
Other income				5,000
Net income				$34,000

(a)

Prepare a statement of cash flows for Marchant Ltd. for the year ended December 31, 2020, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Cash paid for interest		$Enter a dollar amount.

Answer 1

Solution

Marchant Ltd
Statement of Cash Flows
For the Year Ended December 31, 2020
Cash flows from operating activities:
Net income		$ 34,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	$       32,000
Changes in current operating assets
Decease in accounts receivables	$       24,000
Increase in inventory	$      (36,000)
Decrease in accounts payable	$          (5,400)
Decrease in wages payable	$        (3,200)
		$ 11,400
Net cash from Operating Activities		$ 45,400
Cash flows from investing activities:
Purchase of Equipment	$        (38,000)
Net cash from Investing Activities		$(38,000)
Cash flows from financing activities:
Issue of common stock	$       54,000
Repayment of loan	$      (64,130)
Dividends paid	$        (9,270)
Net cash from Financing Activities		$(19,400)
Net change in cash during the year		$(12,000)
Add: Beinning cash balance		$ 67,000
Ending cash balance		$ 55,000