Question

The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below.

GREAT ADVENTURES, INC.
Income Statement
For the year ended December 31, 2022
Net revenues:				$	174,820
Expenses:
Cost of goods sold	$	39,000
Operating expenses		57,500
Depreciation expense		18,000
Interest expense		8,032
Income tax expense		15,000
Total expenses					137,532
Net income				$	37,288

GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
									Increase (I) or
	2022				2021				Decrease (D)
Assets
Current assets:
Cash	$	218,748			$	61,200			$	157,548		(I)
Accounts receivable		48,500				0				48,500		(I)
Inventory		8,000				0				8,000		(I)
Other current assets		1,000				4,900				3,900		(D)
Long-term assets:
Land		600,000				0				600,000		(I)
Buildings		830,000				0				830,000		(I)
Equipment		72,300				45,000				27,300		(I)
Accumulated depreciation		(26,250	)			(8,250	)			18,000		(I)
Total assets	$	1,752,298			$	106,250
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	25,200			$	3,000			$	22,200		(I)
Interest payable		800				800
Income tax payable		15,000				14,100				900		(I)
Other current liabilities		24,000				0				24,000		(I)
Notes payable (current and long-term)		623,660				31,000				592,660		(I)
Stockholders’ equity:
Common stock		130,000				20,000				110,000		(I)
Paid-in capital		995,000				0				995,000		(I)
Retained earnings		58,638				33,950				24,688		(I)
Treasury stock		(120,000	)			0				(120,000	)	(I)
Total liabilities and stockholders’ equity	$	1,752,298			$	106,250

Additional Information for 2022:

1. Land of $600,000 was obtained by issuing a note payable to the seller.
2. Buildings of $830,000 and equipment of $27,300 were purchased using cash.
3. Monthly payments during the year reduced notes payable by $7,340.
4. Issued common stock for $1,100,000.
5. Purchased 11,000 shares of treasury stock for $20 per share.
6. Sold 5,000 shares of treasury stock at $21 per share.
7. Declared and paid a cash dividend of $12,600.

Required:

Prepare the statement of cash flows for the year ended December 31, 2022, using the indirect method. (List cash outflows and any decrease in cash as negative amounts.)

Answer 1

Solution

GREAT ADVENTURES INC.
Cash Flow Statement
For year ended 31st December 2022
A. Cash Flows from Operating Activity
Net Income		$                  37,288.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$          18,000.00
Changes in current operating assets and liabilities:
Increase in Accounts receivables	$        (48,500.00)
Increase in Accounts payable	$          22,200.00
Increase in Inventory	$          (8,000.00)
Decrease in other current assets	$             3,900.00
Increase in taxes payable	$                900.00
Increase in other current liabilities	$          24,000.00
		$                  12,500.00
Net cash flow from Operating activities		$                  49,788.00
B. Cash flows from Investing Activities
Purchase of equipment	$        (27,300.00)
Purchase of Building	$      (830,000.00)
Net cash flow used for investing activities		$             (857,300.00)
C. Cash Flows from Financing activities
Cash received from sale of common stock	$    1,100,000.00
Cash paid for dividends	$        (12,600.00)
Purchase of Treasury stock	$      (220,000.00)
Reissue of Treasury stock	$        105,000.00
Repayment of loan	$          (7,340.00)
Cash flows from Financing activities		$               965,060.00
Net Increase (Decrease) in Cash [A+B+C]		$               157,548.00
Cash at the beginning		$                  61,200.00
Cash at the end		$               218,748.00
Note: Non cash activity
Issue of notes payable in exchange of Building		$               600,000.00

.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.