Question

Culver’s Custom Clothing (CCC) sells branded clothing to resorts and corporations. The company’s comparative financial statements are presented below.

CULVER’S CUSTOM CLOTHING STATEMENT OF FINANCIAL POSITION December 31
Current Assets		2020		2019
Cash		139,000		75,600
Accounts receivable		28,000		25,700
Inventory		74,000		45,900
Prepaid expenses		9,900		2,900
Total current assets		250,900		150,100
Property and equipment
Property and equipment		110,000		146,000
Less: Accumulated depreciation		54,600		52,800
Net property and equipment		55,400		93,200
TOTAL ASSETS		$306,300		$243,300
Current liabilities
Accounts payable		25,300		33,300
Salaries payable		8,600		5,300
Interest payable		5,300		8,000
Total current liabilities		39,200		46,600
Loan payable		119,000		111,000
Total liabilities		158,200		157,600
Shareholders' equity
Common shares		20,700		1,600
Retained earnings		127,400		84,100
Total shareholders' equity		148,100		85,700
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$306,300		$243,300

CULVER’S CUSTOM CLOTHING INCOME STATEMENT For the Years Ended December 31
		2020		2019
Sales revenue		915,000		775,000
Cost of sales		669,000		559,000
Gross margin		246,000		216,000
Expenses
Salary expense		96,000		88,000
Interest expense		5,000		2,100
Other expenses		7,700		5,700
Depreciation expense		31,000		31,900
Total expenses		139,700		127,700
Operating income		106,300		88,300
Loss on disposal of equipment		4,800		1,100
Income tax expense		26,575		18,500
Net income		74,925		68,700

Following is additional information concerning CCC’s transactions during the year ended December 31, 2020:

●		Equipment costing $37,000 was purchased by paying $24,000 cash and issuing 400 common shares.
●		Equipment costing $73,000 that was purchased at the beginning of 2019 was sold at the end of 2020 for $39,000. Straight-line depreciation had been used with an expected asset life of 5 years and a residual value of $0.
●		The “other expenses” relate to prepaid items.
●		In order to supplement its cash, CCC increased its bank loan by $8,000.
●		Cash dividends of $31,625 were paid at the end of the fiscal year.
●		Cost of sales includes $176,000 of direct labour costs.

Prepare a statement of cash flows for CCC for the year ended December 31, 2020, using the direct method. CCC follows ASPE. Include any note disclosure on non-cash financing and investing transactions.

Answer 1