Continuing Cookie Chronicle ( Note: This is a continuation of the Cookie Chronic
ID: 2566996 • Letter: C
Question
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 11.)
CCC12 Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. and would like you to prepare the cash flow statement. The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for the years 2018 and 2017 and the income statement for the year ended October 31, 2018, are presented below.
Additional information:
1. Equipment (cost $4,500 and book value $3,000) was disposed of at the beginning of the year for $500 cash and replaced with new equipment purchased for $4,000 cash.
2. Additional equipment was bought for $14,000 on November 1, 2017. A $12,000 note payable was signed. The terms provide for equal semi-annual installment payments of $2,000 on May 1 and November 1 of each year, plus interest of 5% on the outstanding principal balance.
3. Other equipment was bought for $13,000 cash.
4. Dividends were declared on the preferred and common stock on October 15, 2018, to be paid on November 15, 2018.
5. Accounts payable relate only to merchandise creditors.
6. Prepaid expenses relate only to other operating expenses.
Instructions
(a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2018, using the indirect method.
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Assets
2018
2017
Cash
$ 22,324
$5,550
Accounts receivable
3,250
2,710
Inventory
7,897
7,450
Prepaid expenses
5,800
6,050
Equipment
102,000
75,500
Accumulated depreciation—
equipment
(25,200)
(9,100)
Total assets
$116,071
$88,160
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Liabilities and Stockholders’ Equity
2018
2017
Accounts payable
$ 1,150
$ 2,450
Income taxes payable
9,251
7,200
Dividends payable
27,000
27,000
Salaries and wages payable
7,250
1,280
Interest payable
188
0
Note payable
10,000
0
Preferred stock, no par, $6 cumulative,
3,000 and 2,800 shares issued,
respectively
15,000
14,000
Common stock, $1 par—25,180 shares
issued and outstanding
25,180
25,180
Additional paid-in capital—treasury stock
250
250
Retained earnings
20,802
10,800
Total liabilities and stockholders’ equity
$116,071
$88,160
COOKIE & COFFEE CREATIONS INC.
Income Statement
Year Ended October 31, 2018
Sales
$485,625
Cost of goods sold
222,694
Gross profit
262,931
Operating expenses
Salaries and wages expense
$147,979
Depreciation expense
17,600
Other operating expenses
48,186
213,765
Income from operations
49,166
Other expenses
Interest expense
$ 413
Loss on disposal of plant
assets
2,500
2,913
Income before income tax
46,253
Income tax expense
9,251
Net income
$ 37,002
Assets
2018
2017
Cash
$ 22,324
$5,550
Accounts receivable
3,250
2,710
Inventory
7,897
7,450
Prepaid expenses
5,800
6,050
Equipment
102,000
75,500
Accumulated depreciation—
equipment
(25,200)
(9,100)
Total assets
$116,071
$88,160
Explanation / Answer
Note: Equipment acquired by issuing note payable $12000 is a non-cash transaction and does not flow through the cash flow statement but is disclosed as footnote to the financial statements. Thus equipments purchased for cash only are included in the cash flow statement.
Similarly only portion of note payable paid $2000 is shown as outflow on the cash flow statement.
Calculations:
COOKIE & COFFEE CREATIONS INC. Statement of Cash Flows For the Year Ended October 31, 2018 Cash flow from Operating activities: Net Income 37002 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 17600 Loss on disposal of plant assets 2500 Increase in Accounts receivable -540 Increase in Inventory -447 Decrease in Prepaid expenses 250 Decrease in Accounts payable -1300 Increase in Salaries and wages payable 5970 Increase in interest payable 188 Increase in income tax payable 2051 26272 Net cash provided by operating activities 63274 Investing activities: Purchase of equipment ($4000 + $2000 + $13000) -19000 Sale of equipment 500 Net cash used by investing activities -18500 Financing activities: Issue of preferred stock 1000 Dividends paid -27000 Payment of note payable -2000 Net cash used by financing activities -28000 Net increase in cash 16774 Beginning cash balance 5550 Ending cash balance 22324Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.