Statement of Cash Flows Using A method of preparing the statement of cash flows

Question

Statement of Cash Flows Using A method of preparing the statement of cash flows that reconciles net income with net cash flows from operating activities.Indirect Method

For the year ending March 31, 20Y5, Omega Systems Inc. reported net income of $105,450 and paid dividends of $7,500. Comparative balance sheets as of March 31, 20Y5 and 20Y4, are as follows:

Instructions:

1. Prepare a statement of cash flows, using the indirect method. Enter account decreases, cash outflows, and the income statement effects that reduce net income as negative amounts.

For the Year Ended March 31, 20Y5

Cash flows from operating activities:

Net income

Depreciation expense-store equipment

Depreciation expense-office equipment

Changes in noncash current operating assets and liabilities:

Increase in accounts receivable

Increase in inventory

Increase in estimated returns inventory

Decrease in office supplies

Decrease in prepaid insurance

Increase in accounts payable

Increase in customer refunds payable

Decrease in salaries payable

Decrease in unearned rent

Net cash flows used for investing activities

Cash flows used for financing activities:

Payment of note payable

Payment of dividends

Net cash flows used for financing activities

Net increase in cash

April 1, 20Y4 cash balance

March 31, 20Y5 cash balance

OMEGA SYSTEMS INC. Balance Sheets March 31, Changes Increase
(Decrease) 20Y5 20Y4 Assets Current assets:   Cash $ 39,500 $ 29,250 $ 10,250   Accounts receivable 114,120 78,000 36,120   Inventory 126,550 117,550 9,000   Estimated Returns Inventory 6,600 5,000 1,600   Office supplies 4,255 4,435 (180)   Prepaid insurance 3,975 4,500 (525)     Total current assets $ 295,000 $238,735 $ 56,265 Property, plant, and equipment:   Land $ 30,000 $ 30,000 $ 0   Store equipment 350,000 285,000 65,000   Accumulated depreciation—store equipment (118,550) (93,900) (24,650)   Office equipment 23,355 15,000 8,355   Accumulated depreciation—office equipment (7,080) (3,345) (3,735)     Total property, plant, and equipment $ 277,725 $232,755 $ 44,970 Total assets $ 572,725 $471,490 $101,235 Liabilities Current liabilities:   Accounts payable $ 24,630 $ 13,905 $ 10,725   Customer refunds payable 9,000 7,500 1,500   Notes payable (current portion) 7,500 7,500 0   Salaries payable 1,710 2,250 (540)   Unearned rent 2,700 3,600 (900)     Total current liabilities $ 45,540 $ 34,755 $ 10,785 Long-term liabilities:   Notes payable (final payment due in eight years) 30,000 37,500 (7,500) Total liabilities $ 75,540 $ 72,255 $ 3,285 Stockholders’ Equity Common stock $ 37,500 $ 37,500 $ 0 Retained earnings 459,685 361,735 97,950 Total stockholders’ equity $ 497,185 $399,235 $ 97,950 Total liabilities and stockholders’ equity $ 572,725 $471,490 $101,235

Explanation / Answer

Statement ofCash Flows

Omega Systems Inc.

Statement ofCash Flows

Particulars Amount Net Income as per Profit and Loss 105450 Add: Depreciation Store equipment 24650 Add: Depreciation office equipment 3735 Net Profit before working capital changes 133835 Less: Increase in Account receivable 36120 Less: Increase in inventory 9000 Less: Increase in estimated returns inventory 1600 Add: Decrease in office supplies 180 Add: Decrease in prepaid insurance 525 Add: Increase in account payable 10725 Add: Increase in customer refunds payable 1500 Less: Decrease in salaries payable 540 Less: Decrease in unearned rent 900 CASH FLOW FROM OPERATING ACTIVITIES (A) 98605 Purchase of store equipment -65000 Purchase of office equipment -8355 CASH FLOW FROM INVESTING ACTIVITIES (B) -73355 Payment of note payable -7500 Dividend Paid -7500 CASH FLOW FROM FINANCING ACTIVITIES (C ) -15000 CASH GENERATED FROM ALL ACTIVITES (A+ B+ C) 10250 Opening cash and cash equivalents 29250 Closing cash and cash equivalents 39500

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