Question

Income Statement for the year ended December 31, 2020 (millions of $)

Revenue (sales)	$773
Cost of goods sold	595
Selling, general, and administrative expenses*	130
Loss on disposal of plant**	6
Interest expense	12
Income tax expense	10
Net income	$ 20

*Includes depreciation expense of $30 million, insurance expense of $8 million, bad debt expense of $6 million, and salaries expense of $86 million.

** During 2020, the company purchased two pieces of equipment costing a total of $36 million. Summer Fun also incurred a loss of $6 million on the sale of a plant.

Balance Sheet at December 31 (millions of $)

	2020		2019
Cash	$ 15		$    2
Accounts receivable, net	93		79
Inventory	132		120
Prepaid insurance	6		8
Property, plant, and equipment, gross	195		182
Accumulated depreciation	55		35
Total assets	$386		$356
Accounts payable (inventory)	$ 40		$ 43
Interest payable	5		2
Deferred revenue	4		3
Short-term bank loans	20		35
Long-term debt	115		105
Common stock and additional paid-in capital	105		90
Retained earnings	97		78
Total liabilities and equity	$386		$356

Question 1: 2020 cash flow from financing activities is a net cash inflow of:

Question 2: 2020 cash flow from operating activites is a net cash inflow of:

Question 3: If the company used the direct method of reporting cash flow from operating activities, the amount of "Cash paid for interest" in 2020 would be:

Question 4: Based on the information above, the company's 2020 cash flow from investing activities should inlclude a cash inflow from the sale of the plant totaling:

Answer 1

Solution:-

Question 1: 2020 cash flow from financing activities is a net cash inflow of:-

Cash flow from financing activities is a net cash inflow of

-5 million

Explanation:-

Particulars	Amount
Payment of short-term loan (20-35)	-15 million
Receipt Long-term debt (115-105)	10 million
Cash flow from financing activities	-5 million

Question 2: 2020 cash flow from operating activites is a net cash inflow of:-

Cash flow from operating activites is a net cash inflow of

39 million

Explanation:-

Particulars	Amount
Net Income	20
Add depreciation expense	30
Add loss on disposal of plant	6
Add bad debts expenses	6
Less increase in accounts receivable (93 - 79)	(14)
Add decrease in prepaid insurance (8 - 6)	2
Less increase in inventory (132 - 120)	(12)
Less decrease in accounts payable (43 - 40)	(3)
Add increase in interest payable (5 - 2)	3
Add increase in deferred revenue (4 - 3)	1
Cash flow from operating activity	39

Question 3: If the company used the direct method of reporting cash flow from operating activities, the amount of "Cash paid for interest" in 2020 would be:-

"Cash paid for interest" in 2020 would be

9 million

Explanation:-

Opening Balance	2
Add interest expense during the year	12
Less closing balance	(5)
Cash paid for interest	9

Question 4: Based on the information above, the company's 2020 cash flow from investing activities should inlclude a cash inflow from the sale of the plant totaling:-

Cash inflow from the sale of the plant totaling

7 million

Explanation:-

Opening balance of property plant and equipment	182
Add purchase during the year	36
Less closing balance of property plant and equipment	(195)
Cost of equipment sold during the year (a)	23
Opening balance of accumulated depreciation	35
Add depreciatin expense during the year	30
Less closing balance of accumulated depreciation	(55)
Accmulated depreciation related to equipment sold during the year (b)	10
Book value of proerty sold (a) - (b)	13
Less loss on sale of equipment	(6)
Cash received from sale of equipment	7

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