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 cash flow statement. The income statement and balance sheet appear below. Recall that the company started operations on November 1, 2018, so all of the opening balances are zero. Additional information: 1. The company bought kitchen equipment (a commercial oven) for $29,000 on November 1, 2018, 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 11 that the company originally issued 25,930 common shares for $25,930, of which 750 shares were repurchased from the lawyer for $500. COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2019 Sales revenue $462,500 Cost of goods sold 231,250 Gross profit 231,250 Operating expenses Salaries and wages expense $92,500 Depreciation expense 3,900 Other operating expenses 35,987 132,387 Income from operations 98,863 Other expenses Interest expense 413 Income before income tax 98,450 Income tax expense 19,690 Net income $78,760

Answer 1

COFFEE & COOKIE CREATIONS INC.
Statement of Cash Flows
For the Year Ended October 31, 2018
Operating activities:
Net Income		78760
Adjustments to reconcile net income to
cash flows from operating activities
Depreciation expense	3900
Increase in Accounts receivable	-3250
Increase in Inventory	-17897
Increase in Prepaid expenses	-6300
Increase in Accounts payable	5848
Increase in Salaries and wages payable	2250
Increase in interest payable	188
Increase in income tax payable	19690
		4429
Net cash provided by operating activities		83189
Investing activities:
Purchase of kitchen equipment ($29000 - $12000)	-17000
Purchase of furniture and fixtures	-12500
Purchase of computer equipment	-4200
Net cash used in investing activities		-33700
Financing activities:
Repayment of note payable	-2000
Issue of common stock	25930
Repurchase of shares	-500
Cash dividend paid*	-700
Issue of Preferred stock	14000
Net cash provided by financing activities		36730
Net increase in cash		86219
Cash balance, November 1, 2018		0
Cash balance, October 31, 2019		86219
Noncash Investing and Financing Activities:
Issuance of note payable for kitchen equipment		12000

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*Cash dividend paid:

Retained earnings, beginning balance	0
Add: Net income for the year	78760
Less: Retained earnings, ending balance	77360
Dividends declared	1400
Less: Dividend payable	700
Dividend paid	700