Main Street Antiques Ltd.’s comparative balance sheet at December 31, 2017, and its 2017 income statement are as follows:
Other information for the year ended December 31, 2017:
a. Acquired equipment by issuing a long-term note payable, $76,500, and paying $5,000 cash.
b. Purchased a long-term investment for cash.
c. Received cash for issuance of common shares, $40,000.
d. Only cash dividends were issued during the year.
e. Paid short-term note payable by issuing common shares.
Required
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1. Prepare the cash flow statement of Main Street Antiques Ltd. for the year ended December 31, 2017, using the direct method to report operating activities. Also prepare a note to the financial statements providing a summary of non-cash investing and financing activities. All current accounts, except short-term notes payable, result from operating transactions.
2. Prepare a supplementary schedule showing cash flows from operations by the indirect method.
SOLUTION
Req. 1
Main Street Antiques Ltd.
Cash Flow Statement
For the Year Ended December 31, 2017
Cash flows from operating activities:
Receipts:
Collections from customers ($1,327,000 – $128,500)
$1,198,500
From interest ($53,000 + $3,500)
56,500
$1,255,000
Payments:
To suppliers ($402,000 – $33,000 + $42,000)
$(411,000)
To employees ($194,000 + $8,500)
(202,500)
Interest ($30,500 – $4,000)
(26,500)
Other expenses ($210,000 + $7,500 + $4,500)
(222,000)
Income tax ($49,500 + $3,500)
53,000
$(915,000)
Net cash inflow from operating activities
$340,000
Cash flows from investing activities:
Sale of land ($480,000 $212,000 $33,500)
$ 234,500
Acquisition of equipment
(5,000)
Acquisition of long-term investments
(24,500)
Net cash inflow from investing activities
205,000
Cash flows from financing activities:
Payment of long-term note payable
($237,000 $470,500 $76,500)
$(310,000)
Issuance of common shares
40,000
Payment of cash dividends
(130,000)
Net cash outflow from financing activities
(400,000)
Net increase in cash
$ 145,000
Cash balance, January 1, 2017
43,000
Cash balance, December 31, 2017
$ 188,000
Note to financial statements:
Summary of Noncash Investing and Financing Activities
Payment of a short-term note by issuing common shares
$23,500
Purchased equipment costing $81,500 by issuing a long-term note in
partial payment
76,500
$100,000
Amounts shown above are for instructional purposes only. Normally, they would not appear on a cash flow statement.
Req. 2
Main Street Antiques Ltd.
Cash Flow Statement (Partial)
For the Year Ended December 31, 2017
Cash flows from operating activities:
Net income
$433,500
Add (subtract) items that affect net income and cash flow