Question

A comparative balance sheet for Pharoah Corporation is presented as follows.

		December 31
Assets		2020			2019
Cash		$ 72,800			$ 22,000
Accounts receivable		83,260			67,460
Inventory		181,260			190,460
Land		72,260			111,460
Equipment		261,260			201,460
Accumulated Depreciation-Equipment		(70,260	)		(43,460	)
Total		$600,580			$549,380
Liabilities and Stockholders' Equity
Accounts payable		$ 35,260			$ 48,460
Bonds payable		150,000			200,000
Common stock ($1 par)		214,000			164,000
Retained earnings		201,320			136,920
Total		$600,580			$549,380

Additional information:

1.		Net income for 2020 was $127,520. No gains or losses were recorded in 2020.
2.		Cash dividends of $63,120 were declared and paid.
3.		Bonds payable amounting to $50,000 were retired through issuance of common stock.

Prepare a statement of cash flows for 2020 for Pharoah Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution

Pharoah Company
Cash Flow Statement
For the ended December 31, 2020
Cash Flow from Operating Activities:
Net Income		$         127,520.00
Adjustments to reconcile net income to
Net cash flow from operating activities
Depreciation expense	$       26,800.00
Increase in Accounts receivables	$     (15,800.00)
Decrease in Inventory	$          9,200.00
Decrease in accounts payable	$     (13,200.00)
		$              7,000.00
A. Cash Flow from Operating Activities		$         134,520.00
Cash Flow from Investing Activities:
Sale of land	$       39,200.00
Purchase of Investment	$     (59,800.00)
B. Cash flow from Investing Activities		$         (20,600.00)
Cash Flow from Financing Activities:
Dividend paid	$     (63,120.00)
C. Cash Flow from Financing Activities		$         (63,120.00)
Increase (Decrease) in cash [A+B+C]		$            50,800.00
Add: cash at the beginning of the year		$            22,000.00
Cash at the end of the year		$            72,800.00

.General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.