Question

Problem I                              

                                     Katie Inc.

                                Balance Sheet

                              At December 31

	2017		2016
Current assets:
Cash	$ 17,000		$ 10,000
Accounts receivables	50,000		45,000
Inventory	64,000		70,000
Prepaid expenses	12,000		10,000
Total Current Assets	$143,000		$135,000
Non-current Assets:
Plant assets	580,000		560,000
Accumulated depreciation	(130,000)		(100,000)
Patent	50,000		60,000
Total Non-current Assets	$500,000		$520,000
Total Assets	$643,000		$655,000
Liabilities:
Current Liabilities
Accounts payable	$ 90,000		$ 93,000
Salaries payable	8,000		4,000
Total Current Liabilities	$98,000		97,000
Non-current Liabilities:
Bonds payable, net of discount of $2,000	0		118,000
Notes payable	40,000		40,000
Total non-current liabilities	$40,000		158,000
Total Liabilities	$138,000		255,000
Equity
Contributed Capital
Common stock	280,000		260,000
Retained earnings	265,000		140,000
Treasury stock	(40,000)		0
Total Equity	$505,000		$400,000
Total Liabilities and Equity	$643,000		$655,000

                                  Katie Inc.

                         Income Statement

             For the years ended December 31

The income statement for 2017 is as follows:
Sales	$1,500,000
Cost of sales	(900,000)
Gross margin	$   600,000
Operating expenses	(450,000)
Income from operations	$   150,000
Interest expense	(5,000)
Net income	$   145,000

Additional information:

a.   The Accumulated Depreciation account has been credited only for the depreciation expense for the period.

b.   The only changes to retained earnings were for net income and dividends for 2014.

c.   A piece of equipment was acquired and common stock was issued in exchange.

d. Salaries expense was $100,000; the company usually reports the related cash flows separately in the statement of cash flows.

Required:

Using the information above, prepare a statement of cash flows for Katie Inc. for the year ended December 31, 2017, using the direct method. (Also prepare any required supplemental schedules and disclosures).

Answer 1

Cash Flow from Operating Activities:-	Amount	Amount
Cash Collect from customer (1500000{sale} - 5000{A/c rec} + 6000{inventory})	1501000
Cash Paid to supplier (900000{cost of sale} + 3000 {A/c payable})	(903000)
Operating Exp (450000 - 100000{salary} + 2000{prepaid exp})	(352000)
Salary (100000 + 4000{salary payable})	(96000)
Depreciation	30000
Cash Flow from Operating Activities (A)	180000	180000
Cash Flow from Investing Activities:-
Purchase Equipment	(20000)
Ammortise Patent	10000
Cash Flow from Investing Activities (B)	(10000)	(10000)
Cash Flow from Financing Activities:-
Dividend Paid	(20000)
Stock Issue	20000
Int Exp	(5000)
Bond Paid	(118000)
Treasury stock	(40000)
Cash Flow from Financing Activities (C)	(163000)	(163000)
Total Cash Flow (A+B+C)		7000
Add :- Opening cash		10000
Ending Cash		17000