The comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. The owners have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your surname initial. (Hint!!!! Example surname Brad will use the initial B and that person should only use the info presented in line with the heading with their surname initial. If you have a double barrel surname for example Campbell-Brown, use the initial for the one at the front which in this case would be C. Financial info to be used by surnames with initials (S, W, G, Z) Sign Language Hearing Co Ltd Comparative Balance Sheet October 31, 2020, and 2021 2021 2020 Assets Cash and cash equivalent 275,000 320,000 Accounts Receivable 240,000 180,000 Inventory 220,000 240,000 Prepaid expenses 45,000 45,000 Equipment, net 510,000 350,000 Total Assets 1,290,000 1,135,000 Liabilities Accounts payable 285,000 305,000 Accrued liabilities 305,000 285,000 Bond payable 205,000 145,000 Stockholders' Equity: Common Stock 120,000 85,500 Retained earnings 475,000 314,500 Treasury stock (100,000) - Total liabilities and stockholders' equity 1,290,000 1,135,000 Sign Language Hearing Co Ltd Income Statement Year Ended October 31,2021 Revenues and gains: Sales revenue 950,000 Gain on sale of equipment 10,000 Total revenues and gains 960,000 Expenses Cost of goods sold 450,000 Salary expense 105,000 Depreciation expense 26,000 Rent expense 155,500 Total expenses 736,500 Income before income taxes 223,500 Income tax expense 38,900 Net Profit 184,600 Notes Purchase of equipment 286,000 Cash receipt from sale of equipment 110,000 Issuance of bonds payable to borrow cash 60,000 Cash receipt from issuance of common stock 34,500 Dividend paid 24,100 Book value of equipment sold 100,000 Purchase of treasury stock 100,000 Requirements In comparison to investing and financing activities, it is often said that cash from operating activities must be the main source of cash to achieve long term success of the company. Do you agree or disagree with this statement? In your own words, give reason or reasons to support your answer taking into consideration the possible consequences of the cash being provided by any of the other two activities over the long run. Prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners.

The owners have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your surname initial. (Hint!!!! Example surname Brad will use the initial B and that person should only use the info presented in line with the heading with their surname initial. If you have a double barrel surname for example Campbell-Brown, use the initial for the one at the front which in this case would be C.

 

 

Financial info to be used by surnames with initials (S, W, G, Z)

 

Sign Language Hearing Co Ltd

Comparative Balance Sheet

October 31, 2020, and 2021

 

2021

2020

        Assets

 

 

   Cash and cash equivalent

     275,000

        320,000

   Accounts Receivable

     240,000

        180,000

   Inventory

     220,000

        240,000

   Prepaid expenses

       45,000

           45,000

Equipment, net

     510,000

        350,000

Total Assets

 1,290,000

     1,135,000

      Liabilities

 

 

   Accounts payable

     285,000

        305,000

   Accrued liabilities

     305,000

        285,000

Bond payable

     205,000

        145,000

      Stockholders' Equity:

 

 

Common Stock

     120,000

           85,500

Retained earnings

     475,000

        314,500

Treasury stock

   (100,000)

                    -  

Total liabilities and stockholders' equity

 1,290,000

     1,135,000

 

 

 

 

 

 

 

 

Sign Language Hearing Co Ltd

Income Statement

Year Ended October 31,2021

Revenues and gains:

 

 

   Sales revenue

     950,000

 

   Gain on sale of equipment

       10,000

 

      Total revenues and gains

 

        960,000

Expenses

 

 

   Cost of goods sold

     450,000

 

   Salary expense

     105,000

 

   Depreciation expense

       26,000

 

   Rent expense

     155,500

 

      Total expenses

 

        736,500

Income before income taxes

 

        223,500

Income tax expense

 

           38,900

Net Profit

 

        184,600

     
     

Notes

   

Purchase of equipment

 

        286,000

Cash receipt from sale of equipment

 

        110,000

Issuance of bonds payable to borrow cash

 

           60,000

Cash receipt from issuance of common stock

 

           34,500

Dividend paid

 

           24,100

Book value of equipment sold

 

        100,000

Purchase of treasury stock

 

        100,000

 

 

 

Requirements

  1. In comparison to investing and financing activities, it is often said that cash from operating activities must be the main source of cash to achieve long term success of the company. Do you agree or disagree with this statement? In your own words, give reason or reasons to support your answer taking into consideration the possible consequences of the cash being provided by any of the other two activities over the long run.

 

  1. Prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.
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