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 in cash in the bank. She has not, however, prepared a statement of cash flows. Kate provides vou vish the year-end income statement and balance sheet and asks that you prepare a 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. Prepare a 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. Prepare a statement of cash flows for Kate's Cards for the year ended August 31, 2019, using the direct method. (Appendix 12A)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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**Serial Problem: Kate’s Cards**

(Note: This is a continuation of the Serial Problem: Kate’s Cards from Chapter 1 through Chapter 11.)

**SP12.**

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 provides you with the year-end income statement and balance sheet and asks that you prepare a 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. Prepare a 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. Prepare a statement of cash flows for Kate’s Cards for the year ended August 31, 2019, using the direct method. (Appendix 12A)
Transcribed Image Text:**Serial Problem: Kate’s Cards** (Note: This is a continuation of the Serial Problem: Kate’s Cards from Chapter 1 through Chapter 11.) **SP12.** 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 provides you with the year-end income statement and balance sheet and asks that you prepare a 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. Prepare a 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. Prepare a statement of cash flows for Kate’s Cards for the year ended August 31, 2019, using the direct method. (Appendix 12A)
**Kate's Cards Financial Statements**

### 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: $2,200
- Rent: $14,400
- Depreciation: $3,250

**Total Operating Expenses:** $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

### Balance Sheet
**As of August 31, 2019**

**Assets**
- **Current Assets:**
  - Cash: $17,400
  - Accounts Receivable: $16,000
  - Inventory: $1,000
  - Prepaid Insurance: $11,000

- **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

This set of financial statements provides detailed insights into the financial performance and position of Kate's Cards as of August 31, 2019. The Income Statement highlights the company's profitability, while the Balance Sheet provides a snapshot of its financial standing on that date.
Transcribed Image Text:**Kate's Cards Financial Statements** ### 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: $2,200 - Rent: $14,400 - Depreciation: $3,250 **Total Operating Expenses:** $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 ### Balance Sheet **As of August 31, 2019** **Assets** - **Current Assets:** - Cash: $17,400 - Accounts Receivable: $16,000 - Inventory: $1,000 - Prepaid Insurance: $11,000 - **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 This set of financial statements provides detailed insights into the financial performance and position of Kate's Cards as of August 31, 2019. The Income Statement highlights the company's profitability, while the Balance Sheet provides a snapshot of its financial standing on that date.
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