Indirect Method: Direct Method:

ABC Ltd ABC Ltd

Statement of Cash Flows Statement of Cash Flows
For the period Ended Dec 31, 2019 For the period Ended Dec 31, 2019
OPERATING ACTIVITIES: OPERATING ACTIVITIES:
Profit before taxes XXX Cash collection from customers XXX
Adjustments: Cash payment to suppliers (XXX)
Add! Depreciation Expense / Amortization Expense / Impairment XXX Cash payment for operating expenses (XXX)
Add! Interest Expense XXX Cash flows from operations XXX
Add! Loss on disposal of non-current asset XXX Less! Interest paid (XXX)
Less! Gain on disposal of non-current asset (XXX) Less! Income tax paid (XXX)
Working Capital Changes: (Excluding accruals of interest and taxes) Cash flows from operating activities (A) XXX
Less! Increase in Current Asset (XXX)
Add! Decrease in Current Asset XXX
Less! Decrease in Current Liability (XXX)
Add! Increase in Current Liability XXX
Cash Flow from Operations XXX
Less! Income taxes paid (XXX)
Less! Interest paid (XXX)
Cash Flow From Operating Activities (A) XXX
INVESTING ACTIVITIES:
Sale of non-current Asset / investment XXX
Purchase of non-current Asset / investment (XXX)
Cash Flow From Investing Activities (B) XXX
FINANCING ACTIVITIES:
Issue of shares for cash XXX
Issue of bonds / debentures XXX
Bank Loan XXX
Payment of Bonds / Retirement of bonds / redemption of bonds (XXX)
Purchase of treasury stock (purchase of own shares) (XXX)
Payment of dividend (XXX)
Cash Flow From Financing Activities (C) XXX
Net Cash Flows from all activities (A + B + C) XXX
Opening Cash & Cash Equivalents XXX
Closing Cash & Cash Equivalents XXX
QUESTION # 01
QUESTION # 02
QUESTION # 03
QUESTION # 04
QUESTION # 05
QUESTION # 06
11-1A – Basic Cash Flow Statement

The financial statements of Bait and Tackle are presented below:

Bait and Tackle

Balance Sheet
As at December 31
2017 2016
Cash $39,000 $24,000
Accounts receivable 64,000 50,000
Inventory 58,000 88,000
Equipment 325,000 250,000
Accumulated depreciation (92,000) (125,000)
Total assets $394,000 $287,000

Accounts payable $32,000 $40,000

Income taxes payable 10,000 11,000
Bank loan payable 20,000 0
Common shares 60,000 50,000
Retained earnings 272,000 186,000
Total liabilities and shareholders’ equity $394,000 $287,000

Bait and Tackle

Income Statement
For the Year Ended December 31, 2017
Sales $635,000
Cost of goods sold 320,000
Gross profit 315,000
Operating expenses 135,000
Operating income 180,000
Interest expense 1,000
Income before taxes 179,000
Income taxes 43,000
Net income $136,000

Additional information:
1.) Operating expenses are composed of: Depreciation $12,000; Salaries $50,000; Loss on Sale of Equipment
$9,000; other operating expenses $64,000.
2.) Other operating expenses are cash expenses.
3.) Equipment was purchased during the year for $135,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $60,000, and the
accumulated depreciation was $45,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

88
11-1B – Basic Cash Flow Statement

The financial statements of Safety First are presented below:

Safety First
Balance Sheet
As at December 31
2017 2016
Cash $2,600 $500
Accounts receivable 500 700
Inventory 2,500 2,300
Equipment 21,000 17,000
Accumulated depreciation (3,800) (3,000)
Total assets $22,800 $17,500

Accounts payable $200 $600

Income taxes payable 400 200
Bank loan payable 2,000 0
Common shares 200 100
Retained earnings 20,000 16,600
Total liabilities and shareholders’ equity $22,800 $17,500

Safety First
Income Statement
For the Year Ended December 31, 2017
Sales $51,000
Cost of goods sold 29,000
Gross profit 22,000
Operating expenses 15,000
Operating income 7,000
Interest expense 100
Income before taxes 6,900
Income taxes 2,000
Net income $4,900

Additional information:
1.) Operating expenses are composed of: Depreciation $1,800; Salaries $12,000; Loss on Sale of Equipment
$400; other operating expenses $800.
2.) Other operating expenses are cash expenses.
3.) Equipment was purchased during the year for $7,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $3,000, and the
accumulated depreciation was $1,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

89
11-2A –Cash Flow Statement

The financial statements of Simmons Inc. are presented below:

Simmons Inc.
Balance Sheet
As at May 31
2017 2016
Cash $37,000 $35,000
Accounts receivable 14,000 12,000
Inventory 18,000 15,000
Prepaid insurance 2,000 3,000
Building and equipment 92,000 77,000
Accumulated depreciation (31,000) (19,000)
Total assets $132,000 $123,000

Accounts payable $18,000 $30,000

Salaries payable 4,000 6,000
Income taxes payable 3,000 4,000
Bank loan payable 30,000 10,000
Common shares 6,000 3,000
Retained earnings 71,000 70,000
Total liabilities and shareholders’ equity $132,000 $123,000

Simmons Inc.
Income Statement
For the Year Ended May 31, 2017
Sales $425,000
Cost of goods sold 186,000
Gross profit 239,000
Operating expenses 188,000
Operating income 51,000
Interest expense 2,000
Income before taxes 49,000
Income taxes 10,000
Net income $39,000

Additional information:
1.) Operating expenses are composed of: Depreciation $21,000; Salaries $134,000; Gain on Sale of Equipment
$6,000; other operating expenses $39,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $32,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $17,000, and the
accumulated depreciation was $9,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

90
11-2B –Cash Flow Statement

The financial statements of Kimmel Inc. are presented below:

Kimmel Inc.
Balance Sheet
As at July 31
2017 2016
Cash $104,000 $123,000
Accounts receivable 78,000 84,000
Inventory 409,000 368,000
Prepaid insurance 15,000 12,000
Building and equipment 704,000 684,000
Accumulated depreciation (219,000) (215,000)
Total assets $1,091,000 $1,056,000

Accounts payable $42,000 $43,000

Salaries payable 20,000 17,000
Income taxes payable 8,000 11,000
Bank loan payable 140,000 200,000
Common shares 70,000 61,000
Retained earnings 811,000 724,000
Total liabilities and shareholders’ equity $1,091,000 $1,056,000

Kimmel Inc.
Income Statement
For the Year Ended July 31, 2017
Sales $931,000
Cost of goods sold 483,000
Gross profit 448,000
Operating expenses 268,000
Operating income 180,000
Interest expense 15,000
Income before taxes 165,000
Income taxes 40,000
Net income $125,000

Additional information:
1.) Operating expenses are composed of: Depreciation $35,000; Salaries $155,000; Loss on Sale of Equipment
$4,000; other operating expenses $74,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $74,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $54,000, and the
accumulated depreciation was $31,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

91
11-3A –Cash Flow Statement

The financial statements of Vita Cleanse Inc. are presented below:

Vita Cleanse Inc.

Balance Sheet
As at June 30
2017 2016
Cash $326,000 $385,000
Accounts receivable 120,000 148,000
Inventory 1,325,000 1,105,000
Prepaid insurance 15,000 20,000
Building and equipment 1,591,000 1,659,000
Accumulated depreciation (900,000) (942,000)
Total assets $2,275,000 $2,375,000

Accounts payable $75,000 $88,000

Salaries payable 25,000 19,000
Dividends payable 4,000 6,000
Income taxes payable 15,000 18,000
Bank loan payable 1,500,000 1,700,000
Common shares 75,000 50,000
Retained earnings 783,000 494,000
Total liabilities and shareholders’ equity $2,477,000 $2,375,000

Vita Cleanse Inc.

Income Statement
For the Year Ended June 30, 2017
Sales $3,650,000
Cost of goods sold 2,140,000
Gross profit 1,510,000
Operating expenses 925,000
Operating income 585,000
Interest expense 143,000
Income before taxes 442,000
Income taxes 115,000
Net income $327,000

Additional information:
1.) Operating expenses are composed of: Depreciation $238,000; Salaries $588,000; Loss on Sale of
Equipment $23,000; other operating expenses $76,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $276,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $344,000, and the
accumulated depreciation was $280,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

92
11-3B –Cash Flow Statement

The financial statements of CGP Inc. are presented below:

CGP Inc.
Balance Sheet
As at April 30
2017 2016
Cash $58,500 $18,000
Accounts receivable 40,000 32,000
Inventory 41,000 37,000
Prepaid insurance 1,000 1,200
Building and equipment 67,000 88,000
Accumulated depreciation (31,000) (35,000)
Total assets $176,500 $141,200

Accounts payable $20,000 $18,000

Salaries payable 3,000 5,000
Dividends payable 1,000 500
Income taxes payable 800 2,000
Bank loan payable 25,000 0
Common shares 7,000 5,000
Retained earnings 119,700 110,700
Total liabilities and shareholders’ equity $176,500 $141,200

CGP Inc.
Income Statement
For the Year Ended April 30, 2017
Sales $125,000
Cost of goods sold 48,000
Gross profit 77,000
Operating expenses 58,000
Operating income 19,000
Interest expense 1,500
Income before taxes 17,500
Income taxes 4,500
Net income $13,000

Additional information:
1.) Operating expenses are composed of: Depreciation $8,000; Salaries $41,000; Gain on Sale of Equipment
$7,000; other operating expenses $16,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $10,000 cash.
4.) Equipment was sold for cash during the year. The original cost of the equipment was $31,000, and the
accumulated depreciation was $12,000.
5.) Dividends were declared and paid during the year.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

93
11-4A –Cash Flow Statement – Challenging Problem

The financial statements of Brady Inc. are presented below:

Brady Inc.
Balance Sheet
As at September 30
2017 2016
Cash $600 $2,000
Accounts receivable 14,000 6,000
Inventory 48,000 24,000
Prepaid insurance 1,000 1,500
Building and equipment 45,500 48,000
Accumulated depreciation (9,000) (7,000)
Total assets $100,100 $74,500

Accounts payable $13,000 $9,000

Salaries payable 3,000 2,000
Dividends payable 600 500
Interest payable 800 100
Unearned revenues 6,000 4,000
Income taxes payable 100 300
Bank loan payable 20,000 4,000
Common shares 1,500 1,000
Retained earnings 55,100 53,600
Total liabilities and shareholders’ equity $100,100 $74,500

Brady Inc.
Income Statement
For the Year Ended September 30, 2017
Sales $108,000
Cost of goods sold 54,000
Gross profit 54,000
Operating expenses 48,000
Operating income 6,000
Interest expense 1,500
Income before taxes 4,500
Income taxes 1,000
Net income $3,500

Additional information:
1.) Operating expenses are composed of: Depreciation $8,000; Salaries $36,000; Loss on Sale of Equipment
$1,000; other operating expenses $3,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $7,500 cash.
4.) Equipment was sold for cash during the year.
5.) Dividends were declared and paid during the year.
6.) Unearned revenues are collected from customers.
7.) Paid off $2,000 of long-term note and issued a new note for cash.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

94
11-4B –Cash Flow Statement – Challenging Problem

The financial statements of Wilson Inc. are presented below:

Wilson Inc.
Balance Sheet
As at October 31
2017 2016
Cash $821,000 $580,000
Accounts receivable 375,000 350,000
Inventory 850,000 880,000
Prepaid insurance 30,000 38,000
Building and equipment 3,512,000 3,400,000
Accumulated depreciation (1,940,000) (1,800,000)
Total assets $3,648,000 $3,448,000

Accounts payable $450,000 $500,000

Salaries payable 100,000 120,000
Dividends payable 65,000 50,000
Interest payable 25,000 15,000
Unearned revenues 200,000 180,000
Income taxes payable 40,000 25,000
Bank loan payable 1,400,000 1,100,000
Common shares 90,000 50,000
Retained earnings 1,278,000 1,408,000
Total liabilities and shareholders’ equity $3,648,000 $3,448,000

Wilson Inc.
Income Statement
For the Year Ended October 31, 2017
Sales $1,500,000
Cost of goods sold 580,000
Gross profit 920,000
Operating expenses 680,000
Operating income 240,000
Interest expense 85,000
Income before taxes 155,500
Income taxes 35,000
Net income $120,000

Additional information:
1.) Operating expenses are composed of: Depreciation $200,000; Salaries $420,000; Gain on Sale of
Equipment $15,000; other operating expenses $75,000.
2.) Prepaid insurance is related to the other operating expenses.
3.) Equipment was purchased during the year for $200,000 cash.
4.) Equipment was sold for cash during the year.
5.) Dividends were declared and paid during the year.
6.) Unearned revenues are collected from customers.
7.) Paid off $100,000 of bank loan and signed a new loan for additional cash.

Required:
Prepare a cash flow statement using the direct method or indirect method or both (depending on what your instructor
assigns).

95