Question

Hartman, Inc. has prepared the following comparative balance sheets for 2019 and 2018:

                                                                                                          2019                     2018      

         Cash                                                                                    $   297,000             $ 153,000

         Receivables                                                                              159,000                 117,000

         Inventory                                                                                   150,000                 180,000

         Prepaid expenses                                                                       18,000                   27,000

         Plant assets                                                                           1,260,000              1,050,000

         Accumulated depreciation                                                       (450,000)               (375,000)

         Patent                                                                                       153,000                 174,000

         Total                                                                                        $1,587,000            $1,326,000

         Accounts payable                                                                $   153,000            $   168,000

         Accrued liabilities                                                                        60,000                   42,000

         Mortgage payable                                                                          —                      450,000

         Preferred stock                                                                         525,000                      —

         Additional paid-in capital—preferred                                        120,000                      —

         Common stock                                                                         600,000                 600,000

         Retained earnings                                                                    129,000                   66,000

       Total                                                                                          $1,587,000            $1,326,000

1.   The Accumulated Depreciation account has been credited only for the depreciation expense for the period.

2.   The Retained Earnings account has been charged for dividends of $138,000 and credited for the net income for the year.

      The income statement for 2019 is as follows:

Sales                                                   $1,980,000

Cost of sales                                       1,089,000

Gross profit                                              891,000

Operating expenses                                690,000

Net income                                          $   201,000

Instructions

(a)    From the information above, prepare a statement of cash flows using the direct method of reporting operating activities for Hartman, Inc. for the year ended December 31, 2019.

         (b)    From the information above, prepare a schedule of cash provided by operating activities using the indirect method

Answer 1

Cash collected from customers = Sales + Beginning receivables - Ending receivables
Cash collected from customers = $1,980,000 + $117,000 - $159,000
Cash collected from customers = $1,938,000

Cash paid to suppliers = Cost of sales + Ending inventory - Beginning inventory + Beginning accounts payable - Ending accounts payable
Cash paid to suppliers = $1,089,000 + $150,000 - $180,000 + $168,000 - $153,000
Cash paid to suppliers = $1,074,000

Cash operating expenses = Operating expenses - Depreciation expense - Amortization expense
Cash operating expenses = $690,000 - $75,000 - $21,000
Cash operating expenses = $594,000

Cash paid for operating expenses = Cash operating expenses + Ending prepaid expenses - Beginning prepaid expenses + Beginning accrued liabilities - Ending accrued liabilities
Cash paid for operating expenses = $594,000 + $18,000 - $27,000 + $42,000 - $60,000
Cash paid for operating expenses = $567,000