Question

Intermediate Accounting, Vol. 2, 3e (Lo/Fisher) Statement of Cash Flows Brigitte’s Bathrooms Ltd. balance sheet for the year ended December 31, 2016, follows: 2016 2015 Cash 17,000 43,000 Accounts receivable 104,000 90,000 Inventory 164,000 155,000 Prepaid expenses 48,000 45,000 Land 551,000 310,000 Buildings 860,000 810,000 Accumulated depreciation (250,000) (220,000) Total assets $1,494,000 $1,233,000 Liabilities and shareholders’ equity Accounts payable 50,000 60,000 Interest payable 2,000 5,000 Notes payable 145,000 132,000 Long-term bank loan 600,000 400,000 Total liabilities 817,000 607,000 Preferred shares 0 100,000 Ordinary shares 285,000 210,000 Retained earnings 392,000 316,000 Total equity 677,000 626,000 Total liabilities and shareholders’ equity $1,494,000 $1,233,000 Additional information: During the year, Brigitte declared and paid cash dividends of $50,000. They also declared and distributed stock dividends valued at $20,000. Brigitte bought and sold land during the year. The land that was sold for $200,000 originally cost $250,000. A gain of $25,000 was realized on the sale of a building that cost $200,000. Accumulated depreciation at time of sale was $150,000. Brigitte borrowed money from a finance company, which accounted for the increase in notes payable. The company’s expenses for the year included $40,000 for income tax and $30,000 for interest. Income tax paid is 30,000. Brigitte’s policy is to report interest paid in the cash flows from operating activities section, while dividends paid are classified as a cash outflow from financing activities. Required: a. Explain how it is possible to prepare the statement of cash flows without having the income statement. b. Prepare a statement of cash flows for Brigitte’s Bathrooms Ltd. for 2016 using the indirect method. c. Identify what supplemental disclosure, if any, is required.

Answer 1

a. we need to prepare a balance sheet from given information as follows:

Brigitte's Bathrooms Ltd.
Particulars	2016	2015
Assets
Cash	17,000.00	43,000.00
Accounts Receivables	1,04,000.00	90,000.00
Inventory	1,64,000.00	1,55,000.00
Prepaid expenses	48,000.00	45,000.00
Land	5,51,000.00	3,10,000.00
Building	8,60,000.00	8,10,000.00
Accumulated Depreciation	-2,50,000.00	-2,20,000.00
Total	14,94,000.00	12,33,000.00
Equity and Liabilities
Accounts Payable	50,000.00	60,000.00
Interest Payable	2,000.00	5,000.00
Notes payable	1,45,000.00	1,32,000.00
Other current liabilities (bal.figure)	20,000.00	10,000.00
Long-term   bank loan	6,00,000.00	4,00,000.00
Share capital
Prefereed shares	-	1,00,000.00
Ordinary shares	2,85,000.00	2,10,000.00
Retained earnings	3,92,000.00	3,16,000.00
Total	14,94,000.00	12,33,000.00

b.

Cash Flow statement of Brigitte's Bathrooms Ltd
As on 31st March, 2016
Cash Flow from operating activities
Net profit during the year	(392000-316000)	76,000.00
Add: Non-cash and non operating expenses/items
Depreciation (WN 3)		180000.00
Income tax expenses		40000.00
Interest expenses		30000.00
Cash dividend		50000.00
Loss on sale of land		50000.00
Less: Non operative incomes
Profit on sale of building		-25000.00
		401000.00
Changes in Working capital other than cash (WN 4)	-16000.00
Cash profit from operating activities before interest and taxes	385000.00
Less: Interest paid (bal.figure)		-20000.00
Less: Income tax paid		-30000.00
Net cash flow from operating activities		335000.00
Cash Flow from investing activities
Sale proceeds from sale of land		200000.00
Sale proceeds from sale of building(including Profit)	75000.00
Cash invested in land (WN 1)		-491000.00
Investment in Building (WN2)		-250000.00
Net cash flow from investing activities			-466000.00
Cash Flow from Financing activities
Cash dividend paid		-50000.00
Increase in bank loan		200000.00
Redemption of preference shares		-100000.00
Issue of ordinary shares (excluding stock dividend)	55000.00
Net cash flow from Financing activities		105000.00
			-26000.00
Add: Opening Cash in hand			43,000.00
Closing cash balance			17000.00

WN 1                    Land Account
Particulars	Amount	Particulars	Amount
To Balance b/d	310000.00	By cash(Sale)	200000.00
To cash (bal.figure)	491000.00	By Loss on sale	50000.00
		By Balance c/d	551000.00
	801000.00		801000.00
WN2         Building Account
Particulars	Amount	Particulars	Amount
To Balance b/d	810000.00	By cash	75000.00
To Profit on sale of building	25000.00	By Accumulated depreciation	150000.00
To Cash (bal.figure)	250000.00	By Balance c/d	860000.00
	1085000.00		1085000.00
WN 3        Accumulated Depreciation
Particulars	Amount	Particulars	Amount
To Building	150000.00	By Balance b/d	220000.00
To Balance c/d	250000.00	By Depreciation (bal.figure)	180000.00
	400000.00		400000.00

WN 4 Changes in Working capital other than cash
	2016	2015
Current Assets
Accounts Receivables	1,04,000.00	90,000.00
Inventory	1,64,000.00	1,55,000.00
Prepaid expenses	48,000.00	45,000.00
A	3,16,000.00	2,90,000.00
Accounts Payable	50000.00	60000.00
Interest Payable	2000.00	5000.00
Notes payable	145000.00	132000.00
Other current liabilities (bal.figure)	20000.00	10000.00
B	217000.00	207000.00
Working capital (A-B)	99,000.00	83,000.00
Increase in working capital	16,000.00

C.Supplemental disclosure:

i. Interest expenses $30000 is given. However, how much interest paid during the year is not given. It is assumed that interest paid during the year is $20000.

ii. Other current liabilities is balancing figure in balance sheet from available available account balances given.