Natalie has prepared the balance sheet and income statement of Cookie & Coffee C

Question

Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. for the first year of operations, but does not understand how to prepare the statement of cash flows. The income statement and balance sheet appear below. Recall that the company started operations on November 1, 2017, so all of the opening balances are zero. The income statement and balance sheet appear below. Recall that the company started operations on November 1, 2017, so all of the opening balances are zero.

Additional information:

Net income

COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31, 2018

Assets

Current Assets

     Cash

     Accounts receivable

     Inventory

     Prepaid Rent

Property, Plant, and Equipment

     Equipment

     Accumulated depreciation—equipment

       Total assets

Liabilities and Stockholders' Equity

Current Liabilities

     Accounts payable

     Income tax payable

     Dividends payable

     Salaries and wages payable

     Interest payable

     Note payable—current portion

Long-term Liabilities

     Note payable—long-term portion

       Total liabilities

Stockholders' Equity

     Paid-in capital

       Preferred stock, 2,800 shares issued and outstanding

       Common stock, 25,930 shares issued, 25,180 outstanding

Retained earnings

     Total paid-in capital and retained earnings

     Less: Treasury stock—common (750 shares), at cost

       Total stockholders’ equity

          Total liabilities and stockholders' equity

$149,516

Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2018, using the indirect method.

Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2018, using the direct method

$74,000

1. Recall from Chapter 15 that the company bought kitchen equipment (a commercial oven) for $17,000 on November 1, 2017, and signed a $12,000 note payable to help pay for it. The terms provide for semiannual fixed principal payments of $2,000 on May 1 and November 1 of each year, plus interest of 5%. All other furniture, fixture, and equipment were purchased during the year for cash. 2. Recall from Chapter 14 that the company originally issued 25,930 common shares for $25,930, of which 750 shares were repurchased from the lawyer for $500.

Explanation / Answer

Cash flow statement using indirect method Cash flow sfrom operating activities Amount Net income 74000 Adjustments to convert net income to cash basis Depreciation expense 9850 Interest Expense 413 Increase in current assets Increase in accounts receivable -3250 Inncrease in inventory -17897 increase in prepaid rent -6300 Increase in current liabilities Increase in Accounts payable 5848 Income tax payable 18500 Salaries and wages payable 2250 Net Cash flow from operating activities - A 83414 Cash flow from investing activities Equipment purchased - cash -82700 Equipment purchased - Partialy on cash -5000 = 17000-12000 Net Cash flow from investing activities - B -87700 Issued Preferred stock 14000 issued common stock 25930 Buy back of common stock as treasury stock -500 Notes paid -2000 interest paid ( 413-188) -225 Dividend paid -700 Net Cash flow from financing activities - C 36505 Net increase in cash and cash equivalent = A + B + C 32219 Add: opening cash and cash equivalent 0 Closing cash and cash equivalent 32219 Notes have been issued on non cash basis, therfore no cash flow on issue of notes Interest is expensed at 413 but 188 is still due, so paid interest is 225 Dividend is declared as 1400 ( net income -retained earnings, 74000-72600) 700 dividend is paid and remaing 700 unpaid Equipment worth 17000 purchased on partial cash basis of 5000, for remaining notes have been issued

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