Question

Question 4.3                                                                                (Total: 30 marks; -3 marks per error)

The controller of Infinity Stone Corporation has provided you with the following information:

Infinity Stone Corporation 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

1.      Prepare the operating activities section of a statement of cash flows using the indirect method.

Answer 1

Answer:

Cash Flow statement
Cash Flow from Operating Activities
Net Income before tax		$ 13,500
Adjustments to be made:
Gain on sale of equipment	$ (1,000)
Depreciation	$ 17,000
Increase in Account receivable	$ (8,500)
Decrease in Inventory	$ 10,000
Increase in Prepaid expense	$      (500)
Increase in Wages payable	$    2,000
Decrease in Interest payable	$ (1,000)
Increase in Income-tax payable	$ (1,000)
Increase in Accounts payable	$    3,000	$ 20,000
Cash Flow from Operating Activities		$ 33,500

Calculations:

In case of any doubt or clarification, feel free to come back via comments.