Question

The following information is available for Jack's jewelery and gift store:

Net income: $5,000

Depreciation expense: $2,500

increase in deferred tax liabilities: 500

decrease in accounts receivables: 2,000

increase in inventories: 9,000

decrease in accounts payable: 5,000

increase in accrued liabilities: 1,000

Increase in property/equipment: 14,000

increase in short-term notes payable: 19,000

decrease in long-term bonds payable: 3,000

stock repurchase: 1000

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What is the change in cash?

Answer 1

All the given transactions will be divided into cash flows from operating, investing and financing activities.Then we will,use the indirect method of preparing the cash flow statement.

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Statement showing net change in cash:

Description	Amount	Amount
Cash flows from operating activities:
Net income	$5000
Adjustments to reconcile net income to net cash from operating activties
Add: Depreciation expense	$2500
Add: Increase in deferred tax liabilities	$500
Add: Decrease in accounts receivable	$2000
Less: Increase in inventories	- $9000
Less: Decrease in accounts payable	- $5000
Add: Increase in accrued liabilities	$1000
Net cash used in operating activities		- $3000
Cash flows from investing activities:
Purchase of property plant & equipment	- $14000
Net cash used in investing activities		-$14000
Cash flows from fiancing activities:
Proceeds from issue of short term notes payable	$19000
Payment of long term bonds payable	- $3000
Repurchase of stock	- $1000
Net cash used in financing activities		- $15000
Net decrease in cash		- $32000

So, there will be net decrease in cash for $32000