Question

The comparative balance sheets of Sheridan Inc. at the beginning and the end of the year 2017 are as follows.

SHERIDAN INC. BALANCE SHEETS
		Dec. 31, 2017		Jan. 1, 2017		Inc./Dec.
Assets
Cash		$ 46,990		$ 14,990		$32,000	Inc.
Accounts receivable		94,720		89,730		4,990	Inc.
Equipment		42,720		23,730		18,990	Inc.
Less: Accumulated Depreciation-Equipment		20,720		11,000		9,720	Inc.
Total		$163,710		$117,450
Liabilities and Stockholders’ Equity
Accounts payable		$ 23,720		$ 16,730		6,990	Inc.
Common stock		101,990		81,730		20,260	Inc.
Retained earnings		38,000		18,990		19,010	Inc.
Total		$163,710		$117,450

Net income of $47,720 was reported, and dividends of $28,710 were paid in 2017. New equipment was purchased and none was sold.

Prepare a statement of cash flows for the year 2017. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution

Sheridan Inc
Cash Flow Statement
For the ended december 31, 2017
Cash Flow from Operating Activities:
Net Income		$        47,720.00
Adjustments to reconcile net income to
Net cash flow from operating activities
Depreciation expense	$         9,720.00
Increase in Accounts receivables	$      (4,990.00)
Increase in accounts payable	$         6,990.00
		$        11,720.00
A. Cash Flow from Operating Activities		$        59,440.00
Cash Flow from Investing Activities:
Purchase of Equipment	$    (18,990.00)
B. Cash flow from Investing Activities		$      (18,990.00)
Cash Flow from Financing Activities:
Issue of Common Stock	$      20,260.00
Dividend paid	$    (28,710.00)
C. Cash Flow from Financing Activities		$        (8,450.00)
Increase (Decrease) in cash [A+B+C]		$        32,000.00
Add: cash at the beginning of the year		$        14,990.00
Cash at the end of the year		$        46,990.00

Working

Calculation of dividend paid
Beginning balance of retained earnings	$       18,990.00
Add: Net income	$       47,720.00
	$       66,710.00
Less: Ending balance of Retained earnings	$       38,000.00
Dividends paid in cash	$       28,710.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.