Natalie has prepared the balance sheet and income statement ofCookie & Coffee Creations Inc. and would like you to preparethe cash flow statement. The comparative balance sheet of Cookie& Coffee Creations Inc. at October 31, 2020 for the years 2020and 2019 and the income statement for the year ended October 31,2020, are presented below.
Additional information:
1. Equipment (cost $4,500 and book value $3,000) wasdisposed of at the beginning of the year for $500 cash and replacedwith new equipment purchased for $4,000 cash.
2. Additional equipment was bought for $14,000 onNovember 1, 2019. A $12,000 note payable was signed. The termsprovide for equal semi-annual installment payments of $2,000 on May1 and November 1 of each year, plus interest of 5% on theoutstanding principal balance.
3. Other equipment was bought for $13,000 cash.
4. Dividends were declared on the preferred andcommon stock on October 15, 2020, to be paid on November 15,2018.
5. Accounts payable relate only to merchandisecreditors.
6. Prepaid expenses relate only to other operatingexpenses.
Instructions:
(a) Prepare a statement of cash flows for Cookie & CoffeeCreations Inc. for the year ended October 31, 2020, using theindirect method.
*(b) Prepare a statement of cash flows for Cookie & Coffee CreationsInc. for the year ended October 31, 2020, using the directmethod.
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Assets | 2020 | 2019 |
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 |
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COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Liabilities and Stockholders’ Equity | 2020 | | 2019 |
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, 2020
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 |
