Kate has just completed her first year running Kate's Cards.
View the step-by-step solution to:

Question

Kate has just completed her first year running Kate's Cards. She has been preparing monthly income statements and

balance sheets, so she knows that her company has been profitable and that there is cash in the bank. She has not, however, prepared a statement of cash flows. Kate's provides you with the year-end income statement and balance sheet and asks that you assemble the statement of cash flows for Kate's Cards.

Additional information:

1. There were no disposals of equipment during the year

2. Dividends in the amount of $1,300 were paid in cash during the year.

3. Prepaid expenses relate to operating expenses.

Required

a. Assemble the statement of cash flows for Kate's Cards for the year-ended August 31, 2019, using the indirect method. Hint: Since this was Kate's first year of operations, the beginning balance sheet account balances were zero.

b. Assemble the statement of cash flows for Kate's Cards for the year ended August 31, 2019, using the direct method.

  KATE'S CARDS

Income Statement

Year Ended August 31,2019

Sales Revenue......................................................................................................$185,000

Cost of Goods Sold................................................................................................106,000

Gross profit.............................................................................................................79,000

Operating Expenses

Wages...................................................................................................................18,000

Consulting..............................................................................................................11,850

Insurance..................................................................................................................1,200

Utilities..........................................................................................................................................2,400

Rent.............................................................................................................................................14,400

Depreciation...............................................................................................................................3, 250

Total Operating Expense............................................................................................................51,100

Income from Operations.............................................................................................................27,900

Interest Expense..............................................................................................................................900

Income before income tax..........................................................................................................27,000

Income tax expense....................................................................................................................5,400

Net Income...............................................................................................................................$21,600

KATE'S CARDS

  Balance Sheet

  As of August 31, 2019

Assets

Current assets

Cash.......................................................................................................................................$17,400

Accounts receivable...............................................................................................................11,000

Inventory................................................................................................................................16,000

Prepaid insurance.................................................................................................................1,000

Total Current Assets...............................................................................................................45,400

Equipment............................................................................................................................17,500

Accumulated Depreciation...................................................................................................(3,250)

Total Assets........................................................................................................................$59,650

Liabilities

Current Liabilities

Accounts Payable .................................................................................................................$6,200

Unearned revenue...................................................................................................................1,250

Other Current liabilities............................................................................................................1,900

Total Current Liabilities...........................................................................................................9,350

Note Payable........................................................................................................................15,000

Total Liabilities.....................................................................................................................24,350

Stockholders' equity

Common Stock........................................................................................................................500

Additional paid-in-capital......................................................................................................9,500

Preferred Stock...................................................................................................................5,000

Retained Earnings..............................................................................................................20,300

Total Stockholders' equity....................................................................................................35,300

Total liabilities and stockholders' equity..............................................................................$59,650

Top Answer

Please find attached the answer... View the full answer

direct method.PNG

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question