Question

Titiki Ltd. had the following comparative statement of financial position:

Titiki Ltd.
Comparative Statement of Financial Position
As at December 31

2020                     2019

Cash                                                                                     $20,500               $12,500
Accounts receivable 34,000                  25,500
Inventories 20,000                  30,000
Prepaid insurance 2,500                    2,000
Equipment 102,000                  90,000
Accumulated depreciation—equipment   (22,500)              (12,500)
Total assets   $156,500            $147,500
Accounts payable $23,000               $20,000
Wages payable 4,000                    2,000
Interest payable 2,000                    3,000
Income taxes payable 4,000                    5,000
Long-term note payable 30,000                  34,500
Common shares 65,000                  65,000
Retained earnings     28,500                  18,000
Total liabilities and shareholders’ equity   $156,500            $147,500

Additional information:
· Net income for the fiscal year was $13,500.
·  Equipment that cost $10,000 and was sold for a gain of $1,000 during 2020. The equipment’s accumulated depreciation was $7,000.

Required:
Prepare the statement of cash flows using the indirect format.

Answer 1

Cash Flow statement
Cash Flow from Operating Activities
Net Profit	$13,500
Add:Non Cash Expenses
Depreciation	$17,000
Less: Non operating Income
Gain from sale of equipment	($1,000)
Cash flow for operating activities before change in working capital	$29,500
Add: Increase in Current liabilities/ Decrease in Current aasets
Inventory	$10,000
Account payable	$3,000
Wages Payable	$2,000
Less: Decrease in Current Liabilities/ Increase in current assets
account Receivable	($8,500)
Prepaid Insurance	($500)
Interest Payable	($1,000)
Income Tax payable	($1,000)
Cash Flow from operating activities(A)		$33,500
Cash Flow from Investing activities
Payment for Purchase of Equipment	($22,000)
Proceeds from sale of Equipment	$4,000
Cash Flow from Investing activities(B)		($18,000)
Cash Flow from Financing activities
Payment of Long term note	($4,500)
Payment of Dividend	($3,000)
Cash Flow from Financing activities(C)		($7,500)
Cash Flow from All activities (A)+(B)+(C)		$8,000
Add: Cash & Cash equivalent Opening Balance		$12,500
Cash & Cash equivalent Closing Balance		$20,500

Working:-

1. Calculation of depreciation expenses:-

=Closing Accumulated Depr+accumulated depreciation on sold Equipment- Opening Accumulaed Depr

=$22,500+$7,000-$12,500=$17,000

2. Purchase of Equipment:-

= Opening Equipment-Sale of Equipment-Closing Equipment

=$90,000-$10,000-$102,000=$22,000

3.Proceeds from sale of Equipment:-

= Cost- Accumulated depreciation+gain on sale of Equipment

=$10,000-$7,000+$1000=$4,000

4 Payment of Dividend:-

=Opening Retained Earing+ Net income- Closing Retained earnings

=$18,000+$13,500-$28,500=$3,000

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