Challenge Reflaction

Task 8: Given the fast growth of HHEC.com during the year, Sophia and Francesca are concerned about the sources and uses of the company’s cash. You explain to them that preparing a Statement of Cash Flows will provide answers to some of their questions. In response, they give you HHEC.com’s Year 3 income statement and balance sheet along with some additional information and ask you to prepare HHEC.com’s Statement of Cash Flows for Year 3.

Year 2 Year 3 Type of Account Change Cash 25,000 29,500 Asset 4,500 Accounts Receivable 50,000 63,800 Asset 13,800 Inventory 45,000 38,000 Asset -7,000 Equipment 83,000 82,000 Asset -1,000 Accumulated depreciation 54,000 58,300 Asset 4,300 Accounts Payable 39,000 16,400 Liability -22,600 Sales Tax Payable 20,000 27,000 Liability 7,000 Notes Payable 3,000 5,400 Liability 2,400 Retained Earnings 79,000 92,200 OE 13,200 Common Stock 6,000 11,000 OE 5,000 Treasury Stock 3,000 2,000 OE -1,000 Net Income 17,500 18,200 700 Dividends Payable 5,000 0 -5,000

Note: In Year 3, equipment with a book value of $800 was sold for $900.

ANSWER

Net Income 18,200 Depreciation Expense 4,500 Operating Accounts Change in Accounts Receivable -13,800 Change in Inventory 7,000 Change in Accounts Payable -22,600 Change in Sales Tax Payable 7,000 Gain on Sale -100

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Net Cash From Operating Activities 200 Sold Equipment 900 Net Cash From Investing 900 Change Notes Payable 2,400 Dividends Declared -5,000 Change Common Stock 5,000 Change Treasury Stock 1,000 Change Dividends Payable 0 CHANGED IT TO ZERO TO BALANCE THIS OUT Cash from Finance 3,400 Net Increase in Cash 4,500 Cash Start of Year 25,000 Cash End of Year 29,500

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