Question

In: Accounting

Honeymoon Haven Ltd is due to commence preparation of the Cash Flow Statement at the end...

Honeymoon Haven Ltd is due to commence preparation of the Cash Flow Statement at the end of 2010. The accountant has called in sick and the statement needs to be prepared by the end of the day. Consequently you, as managing director of the company are now required to complete this task, and have been given the following data:

Summarised Balance Sheet as at 31 December 2010

   2010

2009

Cash

106,800

168,210

Accounts Receivable

138,840

133,500

Inventory

213,600

202,920

Property, plant & equipment (net)

341,760

357,780

Total Assets

801,000

862,410

Accounts Payable

128,160

144,180

Wages Payable

2,670

8,010

Mortgage Payable

186,900

229,620

Share Capital

347,100

347,100

Retained Profits

136,170

133,500

Total Liabilities and Owners’ Equity

801,000

862,410

Summarised Income Statement for the year ended 31 December 2010

2010

Sales

480,600

Cost of goods sold

373,800

Expenses (including wages but not depreciation)

53,400

Depreciation

32,040

Net Profit

21,360

Other information was provided as follows:

Land was sold at cost price of $53,400

Equipment was sold during the year at its written down value of $80,100

Dividends of $18,690 were paid during the year

Repayments totalling $42,720 were made on the mortgage payable during the year

Machinery costing $149,520 was purchased for cash

Required:

Prepare the Statement of Cash Flows using the Direct Method. (Refer to ILT report page 23 for layout)

Reconcile net profit to the net cash flow from operating activities. (Refer to ILT report page 37 for layout)

Solutions

Expert Solution

Cash flows from operating activities
Cash receipts from customers 475260
Cash paid to suppliers (389820)
Cash paid to employees (58740)
Cash generated from operations 26700
Net cash from operating activities 26700
Cash flows from investing activities
Purchase of property, plant, and equipment (160200)
Proceeds from sale of equipment 133500
Net cash used in investing activities (16020)
Cash flows from financing activities
Proceeds from issuance of common stock
Proceeds from issuance of long-term debt
Principal payments under capital lease obligation (42720)
Dividends paid (18690)
Net cash used in financing activities (61410)
Net increase in cash and cash equivalents (61410)
Cash and cash equivalents at beginning of period 168210
Cash and cash equivalents at end of period 106800

Reconciliation of net income to net cash provided by operating activities:

Net income 2670
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 32040
Provision for losses on accounts receivable
Gain on sale of equipment
Increase in interest and income taxes payable
Increase in deferred taxes
Increase in other liabilities 18,000
Total adjustments 125,000
Net cash provided by operating activities $2,790,000

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