Question

      The following financial information is obtained regarding Ellish Company:

                                                                              12/31/19                           12/31/18

Current Assets:

Cash                                                                     180,000                                46,000

Accounts Receivable (net)                                 140,000                                90.000

Merchandise Inventory                                     130,000                              150,000

Prepaid Expenses                                                  7,000                                   2,000

Supplies                                                                  3,000                                   4,000

Non-Current Assets:

Land                                                                   100,000                                      -0-

Plant Assets                                                       200,000                               200,000

Accumulated Depreciation                              (60,000)                               (40,000)

Total Assets                                                       700,000                               412,000

Current Liabilities:

Accounts Payable                                               25,000                                 33,000

Accrued Liabilities                                             15,000                                  9,000

Non-current Liabilities:

Notes Payable                                                   100,000                                 20,000

Total Liabilities:                                              140,000                                 62,000

Common Stock ($1 Par Value)                      200,000                                140,000

Common Stock-APIC                                      50,000                                   10,000

Retained Earnings                                          310,000                                200,000

Total Stockholders’ Equity                            560,000                                350,000

Additional Data:

A) 2019 Net Income was $170,000

B) Land was acquired by taking out a Notes Payable for $90,000 and paying Cash for the         balance .

C) All Common Stock was issued for Cash.

REQUIRED:

Prepare the Statement of Cash Flow for Ellish Company under the Indirect Method.

HINT: Don’t be afraid to be an Accounting Detective and draw T-accounts on scrap paper. That will help you with Notes Payable as well as with Depreciation Expense and Dividends which are not given here but can be easily calculated if you are a good Accounting Detective!

Answer 1

Statement of cash flow
Particulars		Amount	Amount
Net income before taxes		170,000
Adjustments to reconcile net income:
Depreciation		20,000
Loss/(gain) on sale of fixed asset		-
Working capital changes:
		-
(Increase in) Accounts receivable		(50,000)
(Increase in) Inventory		(20,000)
(Increase in) Prepaid expenses		(5,000)
Decrease in Supplies		1,000
(Decrease in) Accounts payable		(8,000)
Increase in Accrued liabilities		6,000
Net cash from operations		114,000
Income taxes paid		-
Net cash from operating activities		114,000	114,000
Cash flow from investing activities:
		-
Cash from sale of equipment		-
(Cash used in purchase of) Land		(10,000)
Net cash (used in) investing activities		(10,000)	(10,000)
Cash flow from financing activities:
(Cash paid) for dividends		(60,000)
Note payable paid		(10,000)
		-
Cash from sale of Common stock		100,000
Net cash from financing activities		30,000	30,000
Net change in cash			134,000
Add: Opening cash balance			46,000
Closing cash and cash equivalents			180,000