Question :

MOB COMPANY
Comparative balance sheet
December 31st
Assets 2020 2019
Fixed Assets (Non-Current)
Land 130,000 20,000
Building 160,000 40,000
Less Accumulated depreciation (11,000) (5,000)
Equipment 27,000 10,000
Less Accumulated depreciation (3,000) (1,000)
Current Assets
Prepaid expenses 5,000 1,000
Merchandise inventory 15,000 10,000
Accounts receivable (Debtors) 20,000 30,000
Cash 55,000 33,000
Total Assets 398,000 138,000

Equity and Liabilities

Stockholders’ Equity
Common stock 70,000 50,000
Retained earnings 164,000 48,000
Long term liabilities (Non-Current)
Bonds Payable 130,000 20,000
Current liabilities
Accounts payable (Creditors) 28,000 12,000
Income tax payable 6,000 8,000
Total Equity and Liabilities 398,000 138,000

Income statement
For the year ended December 31st 2020.
Sales 507,000
Less Cost of sales (150,000)
Gross Profit 357,000
Operating expenses 111,000
Depreciation expense 9,000
Loss on sale of equipment 3,000
Interest expense 42,000 (165,000)
Income before tax 192,000
Income tax expense (47,000)
Net income 145,000
Additional information:
1. The company declared and paid a $29,000 cash dividend.
2. Issued $110,000 of long-term bonds in direct exchange for land.
3. A building costing $120,000 was purchased for cash. Equipment costing $25,000 was also purchased for cash.
4. The company sold equipment with a book value of $7,000 for $4,000 cash. (Cost $8,000 less accumulated
depreciation $1,000).
5. Issued Common stock for $20,000 cash.
Required: Prepare a cash flow statement for 2020.
Solution:
Statements of Cash Flow IAS 7 Module 3
workings $ $
Cash flow from operating activities
Net Profit before interest and tax 145,000 + 42,000 + 47,000 234,000

Adjustments:
Add Depreciation Expense for year 9,000
Add Loss or (gain )on sale of Equipment 3,000
Note if it was a gain you less

ALL Current assets except cash Current Assets

When CA increasing MINUS & When decreasing ADD
Decrease in Accounts receivable or Debtors 20,000 – 30,000 10,000
Increase in Inventory or Stock 15,000 – 10,000 (5,000)
Increase in Prepaid Expenses 5,000 – 1,000 (4,000)

All Current liabilities except interest and tax payable Current Liabilities
When CL increasing ADD/ When decreasing MINUS
Increase in Accounts payable (Debts) 28,000 – 12,000 16,000

Interest paid (42,000)

Tax paid (appears under current liabilities) (8,000 + 47,000) – 6,000 (49,000)
(Earlier yr value + I/S Value ) – later yr Value

Net cash flow from operating activities 172,000

Cash flow from investing activities

All Sales and Purchases of Fixed assets /Investment Fixed Assets & Investments
Cash Proceeds from Sale of equipment Note 4 4,000
Cash Purchase of equipment Note 3 (25,000)
Cash Purchase of building Note 3 (120,000)
Non cash Purchase of Land Note 2 Exchange – Non cash
transaction
Net cash flow from investing activities (141,000)

Cash flow from Financing activities

All Shares & Premium/Capital and long-term debts Equity & Longterm liabilities
Proceeds from share issue including share premium 70,000 -50,000 Note 5 20,000
Dividend paid Note 1 (29,000)
Long term Liabilities Noncash exchange for land

Net cash flow from financing activities (9,000)

Net Increase in cash and cash Equivalents 55,000 – 33,000 22,000

Add beginning cash balance 33,000
Ending cash balance 55,000

Noncash activity: Issuance of bonds of $110,000 for purchase of land

Question:
ACCOUNTS COMPANY
Comparative balance sheet
December 31st
Assets 2020 2019
Fixed Assets (Non-Current) Investing – 2nd section
Land 45,000 70,000
Building 200,000 200,000
Less Accumulated depreciation (21,000) (11,000)
Equipment 193,000 68,000
Less Accumulated depreciation (28,000) (10,000)
Current Assets Operating – 1st section
Prepaid expenses 4,000 6,000
Merchandise inventory 54,000 -0-
Accounts receivable (Debtors) 68,000 26,000
Cash 54,000 37,000
Total Assets 569,000 386,000

Equity and Liabilities

Stockholders’ Equity Financing – 3rd section
Common stock ($1 par value) 220,000 60,000
Retained earnings 206,000 136,000
Long term liabilities (Non-Current) Financing – 3rd section
Bonds Payable 110,000 150,000
Current liabilities Operating 1 st section
Accounts payable (Creditors) 23,000 40,000
Accrued expenses payable 10,000 -0-
Total Equity and Liabilities 569,000 386,000

Income statement
For the year ended December 31st 2020.
Sales 890,000
Less Cost of sales (465,000)
Gross Profit 425,000
Operating expenses 221,000
Loss on sale of equipment 2,000
Interest expense 12,000 (235,000)
Income before tax 190,000
Income tax expense (65,000)
Net income 125,000

Additional information:
1. Operating expenses include depreciation expense of $33,000.
2. Land was sold at book value for cash.
3. Cash dividends of $55,000 was declared and paid in 2020.
4. Equipment costing $166,000 was purchased for cash. Equipment with a cost of $41,000 and a book value of
$36,000 was sold for $34,000 cash.
5. Bonds of $10,000 were repaid. Bonds of $30,000 were converted to common stock.
6. Common stock of $130,000 was issued for cash.
Required: Prepare a cash flow statement for 2020.
Solution:
Statements of Cash Flow IAS 7 Module 3
workings $ $
Cash flow from operating activities
Net Profit before interest and tax 125,000 + 12,000 + 65,000 202,000

Adjustments:
Add Depreciation Expense for year Note 1 33,000
Add Loss on sale of Equipment 2,000

When CA increasing MINUS / When decreasing ADD Current assets except cash
Increase in Accounts receivable (42,000)
Increase in Inventory (54,000)
Decrease in Prepaid Expenses 2,000
Current liabilities except
When CL increasing ADD/ When decreasing MINUS interest and tax payable
Decrease in Accounts payable (17,000)
Increase in Accrued expenses payable 10,000

Interest paid (12,000)

Tax paid (65,000)

Net cash flow from operating activities 59,000

Cash flow from investing activities Fixed assets & Investment

Cash Proceeds from Sale of land 45,000 – 70,000 25,000
Cash Proceeds from sale of equipment Note 4 34,000
Cash Purchase of Equipment (166,000)

Net cash flow from investing activities (107,000)

Cash flow from Financing activities Equity & long-term debts

Proceeds from share issue including share premium Note 6 130,000
Dividend paid Note 3 (55,000)
Repayment of bonds (10,000)

Net cash flow from financing activities 65,000

Net Increase in cash and cash Equivalents 54,000 – 37,000 17,000

Add beginning cash balance 37,000
Ending cash balance 54,000

Noncash investing and financing activity:

Converted bonds to common stock note 5
Question:
ARMA Inc
Comparative balance sheet
December 31st
2020 2019
Assets
Cash 90,800 48,400
Accounts receivable 92,800 33,000
Inventories 112,500 102,850
Prepaid expenses 28,400 26,000
Investments 138,000 114,000
Plant assets 270,000 242,500
Accumulated depreciation (50,000) (52,000)
Total Assets 682,500 514,750

Equity and Liabilities

Accounts payable 112,000 67,300
Accrued expenses payable 16,500 17,000
Bonds Payable 110,000 150,000
Common stock 220,000 175,000
Retained earnings 224,000 105,450
Total Equity and Liabilities 682,500 514,750

Income statement
For the year ended December 31st 2020.
Sales 392,780
Less Cost of sales 135,460
Operating expenses excluding depreciation 12,410
Depreciation expense 46,500
Income tax expense 27,280
Interest expense 4,730
Loss on sale of plant assets 7,500 233,880

Net income 158,900

Additional information:
1. New plant assets costing $85,000 were purchased for cash during the year.
2. Old plant assets having an original cost of $57,500 were sold for $1,500 cash.
3. Bonds matured and were paid off at face value.
4. A cash dividend of $40,350 was declared and paid during the year.
Required: Prepare a cash flow statement for 2020.
Solution

Arma Inc
Statement of Cash Flow
December 31,2010
workings $ $
Cash flow from operating activities
Net Profit before interest and tax 158,900 + 4,730 + 27,280 190,910

Adjustments:
Add Depreciation Expense for year 46,500
Add Loss on sale of Plant assets 7,500

When CA increasing MINUS / When decreasing ADD Current assets except cash
Increase in Accounts receivable 92,800 – 33,000 (59,800)
Increase in Inventory 112,500 – 102,850 (9,650)
Increase in Prepaid Expenses 28,400 – 26,000 (2,400)
When CL increasing ADD/ When decreasing MINUS Current liabilities
Increase in Accounts payable 112,000 – 67,300 44,700
Decrease in Accrued expenses payable 16,500 – 17,000 (500)

Interest paid (4,730)

Tax paid (27,280)
Net cash flow from operating activities 185,250

Cash flow from investing activities Fixed assets & Investment

Cash Proceeds from sale of Plant assets NOTE 2 1,500
Cash Purchase of Plant Assets Note 1 (85,000)
Cash Purchase of Investments 138,000 – 114,000 (24,000)
Net cash flow from investing activities (107,500)

Cash flow from Financing activities Equity & long-term debts

Proceeds from share issue including share premium 220,000 – 175,000 45,000
Dividend paid Note 4 (40,350)
Repayment of bonds Note 3 110,000 – 150,000 (40,000)
Net cash flow from financing activities (35,350)

Net Increase in cash and cash Equivalents 90,800 – 48,400 42,400

Add beginning cash balance 48,400
Ending cash balance 90,800

Noncash investing and financing activity:

Question
Assuming all items below involve cash:
(a) Payment of interest on notes payable
(b) Exchange of land for patent
(c) Sale of building at book value
(d) Payment of dividends
(e) Depreciation
(f) Receipt of dividends on investment in stock
(g) Issuance of capital stock
(h) Issuance of bonds for land
(i) Purchase of land
(j) Conversion of bonds to common stock
(k) Loss on sale of land
(l) Repayment of bonds

Indicate how each item should be classified in the statement of cash flows using these four major
classifications: operating activity, investing activity, financing activity and significant noncash investing and
financing activity.

Solution

Items Classification in the cash flow statement

(a) Interest paid Operating Activities
(b) Exchange of assets Significant noncash investing and financing activity
(c) Sale of building Investing activities
(d) Payment of dividend Financing activities
(e) Depreciation Operating
(f) Receipt of dividends Investments
(g) Issue Shares Financing
(h) Issuance of bonds for land Significant noncash investing and financing activity
(i) Purchase land Investing
(J) Bonds into common stock Significant noncash investing and financing activity
(k) Loss on sale of land Operating
(l) Retirement / repayment of bond Financing