Question

Kate has just completed her first year running Kates's Card. She has been preparing monthly income statements and balance sheets, so she knows that her company has been profitable and that there is cash in the bank. She has not, however, prepared a statement of cash flows. Kate provides you with the year-end income statement and balance sheet and asks that you prepare a statement of cash flows for Kate's Cards.

Additional Information:

1. There were no disposals of equipment during the year.

2. Dividends in the amount of $1,300 were paid in cash during the year.

3. Prepaid expenses relate to operating expenses.

REQUIRED:

1. Prepare a statement of Cash flows for Kate's Cards for the year ended August 31, 2016, using the indirect method. Hint: Since this was Kate's first year of operations, the beginning balance sheet account balances were zero.

2. Prepare a statement of cash flows for Kate's Cards for the year ended August 31, 2016, using the direct method. (Appendix 12A)

Kates Cards

Income Statement

Year Ended August 31, 2016

Sales Revenue $135,000 COGS $72,000 Gross Profit $63,000 Operating Expenses Wages 18,000 Consulting 11,850 Insurance $1,200 Utilities $2,400 Depreciation $3,250 Total Operating Expenses $36,700 Income From Operations $26,300 Interest Expense $900 income before tax $25,400 Income Tax Expense $8,900 Net Income $16,500

KATES CARDS

Balance Sheet

As of August 31, 2016

ASSETS Current Assets Cash $12,300 Accounts Receivable $11,000 inventory $16,000 Prepaid Insurance $1,000 TOTAL Current Assets $40,300 Equipment $17,500 Accumulated Depreciation ($3,250) TOTAL Assets $54,550 LIABILITIES Current Liabilities Accounts Payable $6,200 Unearned Revenue $1,250 Other current liabilities $1,900 TOTAL current liabilities $9,350 Note Payable $15,000 TOTAL liabilities $24,350 Stockholders Equity Common Stock $500 Additional Paid-in-capital $9,500 Preferred Stock $5,000 Retained Earnings $15,200 TOTAL Stockholders Equity $30,200 TOTAL Liabilties and stockholders equity $54,550

Answer 1

1.

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2.