Question

Additional Problem 12

Sheridan Ltd., which follows ASPE, had the following comparative statement of financial position:

Sheridan Ltd. Comparative Statement of Financial Position As at December 31
Assets			2018				2017
Cash			$	70,520			$	43,000
Accounts receivable				116,960				87,720
Inventories				68,800				103,200
Prepaid insurance				8,600				6,880
Equipment				264,880				223,600
Accumulated depreciation-equipment				(60,200	)			(43,000	)
Patents				68,800				86,000
	Total assets		$	538,360			$	507,400
Liabilities and Shareholders’ Equity
Accounts payable			$	79,120			$	68,800
Interest payable				6,880				10,320
Wages payable				13,760				6,880
Income taxes payable				13,760				17,200
Long-term note payable				103,200				118,680
Common shares				223,600				223,600
Retained earnings				98,040				61,920
	Total liabilities and shareholders’ equity		$	538,360			$	507,400

Additional information:

1.		Net income for the fiscal year was $46,440.
2.		Equipment that cost $34,400 and was 70% depreciated was sold during 2018, for a gain of $3,440.
3.		No patents were purchased or sold during the fiscal year.

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

Answer 1

Sheridan Ltd.
Statement Cash Flows
For the year ended December 31 2018
Cash Flow from Operating Activities:
Net Income		$      46,440.00
Add: Adjustments
Depreciation Expense	$      41,280.00
Profit on Disposal of Equipment	$      (3,440.00)
Increase in Accounts Receivables	$    (29,240.00)
Decrease in Inventory	$     34,400.00
Increase in Prepaid Expenses	$      (1,720.00)
Amortization of Patent	$      17,200.00
Increase in Accounts Payable	$      10,320.00
Decrease in Income tax payable	$      (3,440.00)
Decrease in Interest payable	$      (3,440.00)
Incresae in Wages payable	$        6,880.00
		$      68,800.00
A. Net Cash Provided by Operating Activities		$    115,240.00
Cash Flow from Investing Activities:
Sale of Equipment	$      13,760.00
Purchase of Equipment	$    (75,680.00)
B. Net Cash Used in Investing Activities		$    (61,920.00)
Cash Flow from Financing Activities:
Payments to notes payable	$    (15,480.00)
Payment of Dividend	$    (10,320.00)
C. Net Cash Provided by Financing Activities		$    (25,800.00)
Net Decrease in cash [A+B+C]		$      27,520.00
Add: cash at the beginning		$      43,000.00
Cash at the end		$      70,520.00

Working notes

Calculation of Depreciation for the year
Opening Accumulated depreciation balance	$     43,000.00
Less: Depreciation of Equipment sold(34400x70%)	$     24,080.00
	$     18,920.00
Les: Closing balance of Accumulated depreciation	$     60,200.00
Depreciation Expense for the year	$     41,280.00

Note-
1) Accumulated depreciation on sold assets is Debited to accumulated depreciation account which increases the balance on Accumulated Depreciation Account.

Calculation of Equipment purchased.
Gross Opening balance of Equipment account	$   223,600.00
Less: Original value of Equipment sold during year	$     34,400.00
	$   189,200.00
Gross Closing balance of Equipment account	$   264,880.00
Equipment purchased	$     75,680.00

Calculation of Dividends paid
Beginning balance of Retained earnings	$    61,920.00
Add: Income earned	$    46,440.00
Subtotal	$ 108,360.00
Ending balance of Retained earnings	$    98,040.00
Dividends paid	$    10,320.00

Depreciation and Patent amortization are non cash expense operating expense hence added to net profit to calculated cash from operations.