Question

E12-13 Preparing and Evaluating a Statement of Cash Flows (Indirect Method) from Comparative Balance Sheets and Income Statements [LO 12-1, LO 12-2, LO 12-3, LO 12-4, LO 12-5]

Consultex, Inc. was founded in 2012 as a small financial consulting business. The company had done reasonably well in 2012–2014 but started noticing its cash dwindle early in 2015. In January 2015, Consultex had paid $14,500 to purchase land and repaid $3,000 principal on an existing promissory note. In March, the company paid $1,700 cash for dividends and $1,100 to repurchase Consultex stock that had previously been issued for $1,100. To improve its cash position, Consultex borrowed $4,700 by signing a new promissory note in May and also issued stock to a new private investor for $11,700 cash. Year-end comparative balance sheets and income statements are presented below.

CONSULTEX, INC.
Balance Sheet
October 31
	2015			2014
Assets
Cash	$	9,490		$	12,500
Accounts Receivable		13,400			11,700
Prepaid Rent		1,850			2,700
Land		25,500			11,000
Total Assets	$	50,240		$	37,900
Liabilities and Stockholders’ Equity
Salaries and Wages Payable	$	1,850		$	2,700
Income Taxes Payable		1,100			1,100
Notes Payable (long-term)		13,400			11,700
Common Stock		19,300			8,700
Retained Earnings		14,590			13,700
Total Liabilities and Stockholders’ Equity	$	50,240		$	37,900

CONSULTEX, INC.
Income Statement
For the Year Ended October 31
	2015			2014
Sales Revenue	$	156,500		$	159,500
Salaries and Wages Expense		97,700			96,700
Rent Expense		35,700			29,700
Utilities Expenses		19,400			19,700
Income before Income Tax Expense		3,700			13,400
Income Tax Expense		1,110			4,020
Net Income	$	2,590		$	9,380

Required:

Prepare a properly formatted Statement of Cash Flows for Consultex, Inc. for the year ended October 31, 2015 (using the indirect method). (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution:

CONSULTEX INC.
Statement of Cash Flow (Indirect Method) For the Year Ended October 31, 2015
Cash Flow from Operating Activities:		$$	$$
Net Income		$2,590
+	Depreciation Expense	$0
+	Income Tax (treated seprately)	$1,110
Add: Changes in current assets and current liabilities
-	Accounts Receivable (13400 - 11700)	-$1,700
+	Prepaid Rent (2700 - 1850)	$850
-	Salaries Payable (2700 - 1850)	-$850
-	Income Tax Paid (Refer Note 1)	-$1,110
Net Cash provided by Operative Activities			$890
Cash Flow from Investing Activities:
-	Purchase of Land	-$14,500
Net Cash Used by Investing Activities			-$14,500
Cash Flow from Financing Activities:
+	Cash received from issuance of common stock	$11,700
+	Cash received from issuance of New Promissory Note	$4,700
-	Re-purchase stock	-$1,100
-	Cash Dividend Paid	-$1,700
-	Repaid principal of Promissory Note	-$3,000
Net Cash Provided by Financing Activities			$10,600
Net Increase/(Decrease) in Cash and Cash Equivalents			-$3,010
Cash and Cash Equivalents at the beginning of the year			$12,500
Cash and Cash Equivalents at the end of the year			$9,490

Note 1 –

Income Tax
Income Tax Paid (Cash)	$1,110	Beg Bal.	$1,100
Ending Bal.	$1,100	Income Tax Expense (Refer income summary)	$1,110
	$2,210		$2,210

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