Question

Presented below is the 2021 income statement and comparative balance sheet information for Tiger Enterprises.

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted. Before proceeding with the cash flow statement, we will check for certain adjustments given as below:

(1) Dividend paid calculation:

Beginning retained earnings: $510

Add: Net income : $1164

Less: Ending retained earnings: ($570)

Dividend paid : $1104

Statement of cash flows for the year ended December 31, 2021 ($ in thousands)

Description	Amount	Amount
Operating activities:
Net income:	1164
Adjustments to reconcile net income to net cash
Add: Depreciation	260
Add: Decrease in accounts receivable	90
Less: Increase in inventory	-50
Less: Increase in prepaid insurance	-40
Less: Decrease in accounts payable	-70
Less: Decrease in accrued liabilities	-110
Add: Increase in income tax payable	40
Add: Increase in notes payable	220
Net cash flows from operating activities		1504
Investing activities:
Purchase of equipment	-400
Net cash flows from investing activities		-400
Financing activities:
Proceeds from issue of common stock	120
Dividends paid	-1104
Net cash flows from financing activities		-984
Net increase in cash		120
Cash, January 1		220
Cash, December 31		340