Consultex, Inc. was founded in 2012 as a small financial consulting business. Th
ID: 2534850 • Letter: C
Question
Consultex, Inc. was founded in 2012 as a small financial consulting business. The company had done reasonably well in 2012-2014 but started noticing its cash dwindle early in 2015. In January 2015, Consultex had paid $17,000 to purchase land and repaid $2,000 principal on an existing promissory note. In March, the company paid $2,200 cash for dividends and $1,200 to repurchase Consultex stock that had previously been issued for $1,200. To improve its cash position, Consultex borrowed $5,200 by signing a new promissory note in May and also issued stock to a new private investor for $12,200 cash. Year-end comparative balance sheets and income statements are presented below. CONSULTEX, INC. Balance Sheet October 31 2015 2014 Assets Cash $ 8.690 12,600 14,400 2,200 3,200 29,000 2,000 2,100 Prepaid Rent Land Total Assets $54.190 $40,000 Liabilities and Stockholders Equity Salaries and Wages Payable Income Taxes Payable Notes Payable (long-term) Common Stock Retained Earnings $ 2,100 3,200 1,200 5,400 2,200 9,200 5,290 14,200 1,200 20,200 Total Liabilities and Stockholders' Equity $54,190 $40,000 CONSULTEX, INC. Income Statement For the Year Ended October 31 2015 2014 Sales Revenue $159,000 $162,000 98,200 97,200 36,200 30,200 19,900 20,200 Salaries and Wages Expense Rent Expense Ublities Expenses 4,700 Income before Income Tax Expense Income Tax Expense 14,400 4,320 Net Income $ 3,290 10,080Explanation / Answer
Solution:
Statement of Cash Flow (Indirect Method)
For the Year Ended October 31, 2015
Cash Flow from Operating Activities:
$$
$$
Net Income
$3,290
Changes in Current Assets and Current Liabilities
-
Increase in Accounts Receivable (14400 - 12200)
-$2,200
+
Decrease in Prepaid Rent (3200 - 2100)
$1,100
-
Decrease in Salaries and Wages Payable (3200 - 2100)
-$1,100
-
Income Tax (Nil)
$0
-$2,200
Net Cash Flow Provided by Operative Activities
$1,090
Cash Flow from Investing Activities:
-
Cash payment for Purchase of Land
-$17,000
-$17,000
Net Cash Flow Used by Investing Activities
-$17,000
Cash Flow from Financing Activities:
-
Repayment of Promissory Note
-$2,000
-
Dividend Paid
-$2,200
-
Treasury Stock
-$1,200
+
Cash Proceeds from Issuance of Promissory note
$5,200
+
Cash Proceeds from Issuance of Common Stock
$12,200
Net Cash Flow Provided by Financing Activities
$12,000
Net Increase/(Decrease) in Cash
-$3,910
Cash at the beginning of the year
$12,600
Cash at the end of the year
$8,690
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Statement of Cash Flow (Indirect Method)
For the Year Ended October 31, 2015
Cash Flow from Operating Activities:
$$
$$
Net Income
$3,290
Changes in Current Assets and Current Liabilities
-
Increase in Accounts Receivable (14400 - 12200)
-$2,200
+
Decrease in Prepaid Rent (3200 - 2100)
$1,100
-
Decrease in Salaries and Wages Payable (3200 - 2100)
-$1,100
-
Income Tax (Nil)
$0
-$2,200
Net Cash Flow Provided by Operative Activities
$1,090
Cash Flow from Investing Activities:
-
Cash payment for Purchase of Land
-$17,000
-$17,000
Net Cash Flow Used by Investing Activities
-$17,000
Cash Flow from Financing Activities:
-
Repayment of Promissory Note
-$2,000
-
Dividend Paid
-$2,200
-
Treasury Stock
-$1,200
+
Cash Proceeds from Issuance of Promissory note
$5,200
+
Cash Proceeds from Issuance of Common Stock
$12,200
Net Cash Flow Provided by Financing Activities
$12,000
Net Increase/(Decrease) in Cash
-$3,910
Cash at the beginning of the year
$12,600
Cash at the end of the year
$8,690
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