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, 2020

Revenues:
Service revenue (clinic, racing, TEAM)	$543,000
Sales revenue (MU watches)	118,000
Total revenues			$661,000
Expenses:
Cost of goods sold (watches)	70,000
Operating expenses	304,276
Depreciation expense	50,000
Interest expense	29,724
Income tax expense	57,000
Total expenses			511,000
Net income			$150,000

GREAT ADVENTURES, INC. Balance Sheets December 31, 2020 and 2019

	2020		2019		Increase (I) or Decrease (D)
Assets
Current assets:
Cash	$ 322,362		$138,000		$ 184,362 (I)
Accounts receivable	45,000		35,000		10,000 (I)
Inventory	17,000		14,000		3,000 (I)
Other current assets	13,000		11,000		2,000 (I)
Long-term assets:
Land	$ 500,000		$ 0		$ 500,000 (I)
Buildings	1,000,000		0		1,000,000 (I)
Equipment	65,000		65,000
Accumulated depreciation	(75,250)		(25,250)		50,000 (I)
Total assets	$1,887,112		$237,750
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$ 12,000		$ 9,000		$ 3,000 (I)
Interest payable	750		750
Income tax payable	57,000		38,000		19,000 (I)
Long-term liabilities:
Notes payable	492,362		30,000		462,362 (I)
Stockholders’ equity:
Common stock	120,000		20,000		100,000 (I)
Paid-in capital	1,105,000		0		1,105,000 (I)
Retained earnings	175,000		140,000		35,000 (I)
Treasury stock	(75,000)		0		(75,000) (I)
Total liabilities and stockholders’ equity	$1,887,112		$237,750

Additional Information for 2020:

1.Borrowed $500,000 in January 2020. Made 12 monthly payments during the year, reducing the balance of the loan by $37,638.

2.Issued common stock for $1,200,000.

3.Purchased 10,000 shares of treasury stock for $15 per share.

4.Reissued 5,000 shares of treasury stock at $16 per share.

5.Declared and paid a cash dividend of $115,000.

Required:

Prepare the statement of cash flows for the year ended December 31, 2020, using the indirect method.

Answer 1

Solution:

Great Adventures, Inc.
Statement of Cash Flows
For the Year ended December 31, 2020
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$1,50,000
Adjustments to reconcile net income to net cash flows from Operating activities:
Depreciation	$50,000
Increase in Accounts Receivables	-$10,000
Increase in Inventory	-$3,000
Increase in other current assets	-$2,000
Increase In Accounts Payable	$3,000
Increase in Income Tax Payable	$19,000
Net Cash Flow From Operating Activities (A)		$2,07,000
Cash Flow from Investing Activities:
Purchase of Land	-$5,00,000
Purchase of Building	-$10,00,000
Net Cash Flow From Investing Activities (B)		-$15,00,000
Cash Flow from Financing Activities:
Issued Note Payable	$5,00,000
Repayment of Note Payable	-$37,638
Issue of Common Stock	$12,00,000
Purchase of Treasury Stock ($15*10,000)	-$1,50,000
Reissue of Treasury Stock ($16*5000)	$80,000
Payment of Dividend	-$1,15,000
Net Cash Flow From Financing Activities (C)		$14,77,362
Total Cash flow from all activities (A+B+C)		$1,84,362
Cash at the beginning of the year		$1,38,000
Cash at the end of year		$3,22,362