Homework Answers
solution-
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galaxy cafe inc. cash flow statement for the year ended june 2020 |
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| cash flow from operatoins | ||
| net income (wn1) | 23000 | |
| adjustments for non cash items | ||
| depreciation expense (wn2) | 7400 | |
| change in current assets and current liabilities | ||
| increase in accounts receivable (wn3) | -11800 | |
| increase in prepaid insurance (wn4) | -900 | |
| increase in food and beverage inventory (wn5) | -12600 | |
| net cash flow provided (used) by operation activities (i) | 5100 | |
| cash flow from investing activities | ||
| purchase of equipment (wn6) | -19000 | |
| net cash provided (used) by investing activities (ii) | -19000 | |
| cash flow from financing activities | ||
| issuance of common shares (wn7) | 22000 | |
| repayment of log term liabilities (wn8) | -8000 | |
| net cash provided (used) by financing activities (iii) | 14000 | |
| net increase (decrease) in cash (i)+(ii)+(iii) | 100 | |
| cash at the beginning of the year (from balance sheet) | 11300 | |
| cash at the end of the year | 11400 |
working notes (wn)-
1.net income= retained earnings of 2020-retained earnings of 2019=73600-50600=23000
2.depreciation expense=accumulated depreciation of 2020-accumulated depreciation of 2019=24100-16700=7400. it is added back to net income because it is a non cash expense.
3.increase in accounts receivable=accounts receivable 2020-accounts receivable 2019=19000-7200=11800
4.increase in prepaid insurance=prepaid insurance 2020-prepaid insurance 2019=2900-2000=900
5.increase in food and beverage inventory=food and beverage inventory 2020-food and beverage inventory 2019=23700-11100=12600
increase in current assets have been subtracted in the cash flow statement beacause it results in decrease of cash.
6.purchse of equipment=equipment of 2020-equipment of 2019=180000-161000=19000. it has been subtacted in cash flow statement beacause it results in outflow of cash.
7.issuance of common shares=common shares 2020-common shares 2019=89000-67000=22000. It has been added in the cash flow statement because it results in inflow of cash.
8.repayment of long-term liabilities- long term liabilities 2019-long term liabilities 2020=36000-28000=8000. It has been deducted from cash flow statement because it results in cash outflow.
Note- The figure that we get at the end of the year (i.e. cash at the end ) can be tallied from the balance of the cash at the end of 2020 from given balance sheet. both figures tally which states that cash flow statement has been correctly prepared.
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