Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 11.)
CCC12 Natalie has prepared the balance sheet and income statement of Cookie &
Coffee Creations Inc. and would like you to prepare the cash flow statement. The
comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2018 for
the years 2018 and 2017 and the income statement for the year ended October 31,
2018, are presented below.
Additional information:
1. Equipment (cost $4,500 and book value $3,000) was disposed of at the beginning
of the year for $500 cash and replaced with new equipment purchased for $4,000
cash.
2. Additional equipment was bought for $14,000 on November 1, 2017. A $12,000
note payable was signed. The terms provide for equal semi-annual installment
payments of $2,000 on May 1 and November 1 of each year, plus interest of 5%
on the outstanding principal balance.
3. Other equipment was bought for $13,000 cash.
4. Dividends were declared on the preferred and common stock on October 15,
2018, to be paid on November 15, 2018.
5. Accounts payable relate only to merchandise creditors.
6. Prepaid expenses relate only to other operating expenses.
Instructions
(a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year
ended October 31, 2018, using the indirect method.
*(b) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for
the year ended October 31, 2018, using the direct method.
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Assets
2018
2017
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
$116,07
1
$88,160
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
Liabilities and Stockholders’
Equity
2018
201
7
Accounts payable
$
1,150
$
2,450
Income taxes payable
9,251
7,200
Dividends payable
27,000
27,00
0
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
14,00
0
Common stock, $1 par—25,180
shares
issued and outstanding
25,180
25,18
0
Additional paid-in capital—
treasury stock
250
250
Retained earnings
20,802
10,80
0
Total liabilities and
stockholders’ equity
$116,0
71
$88,1
60
COOKIE & COFFEE CREATIONS INC.
Income Statement
Year Ended October 31, 2018
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
(a) Indirect method
COOKIE & COFFEE CREATIONS INC.
Statement of Cash Flows
for the Year Ended October 31, 2018
Cash flows from operating activities
Net income …………………………………………………………. $37,002
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation expense………………………………….. $ 17,600
Loss on disposal of plant assets …………………. 2,500
Cash flows from investing activities
Sale of equipment ………………………………………………. $ 500
Cash flows from financing activities
Issuance of preferred stock ………………………………… $ 1,000
Principal repayment of notes payable …………………. (2,000)
Noncash investing and financing activities
Issuance of note payable to purchase
*(b) Direct method
COOKIE & COFFEE CREATIONS INC.
Statement of Cash Flows
for the Year Ended October 31, 2018
Cash flows from operating activities
Cash receipts from customers ……………………………. (1) $485,085
Cash payments
To suppliers ……………………………………………….. $224,441 (2)
Cash flows from investing activities
Sale of equipment ………………………………………………. $ 500
Cash flows from financing activities
Issuance of preferred stock ………………………………… $ 1,000
Net increase in cash …………………………………………………… 16,774
(b) Continued
Calculations:
(1) Cash receipts from customers
Sales ……………………………………………………………………………. $485,625
(2) Cash payments to suppliers
Cost of goods sold ……………………………………………………….. $222,694
Add: Increase in inventory……………………………………………. 447
(3) Cash payments for operating expenses
Other operating expenses and salaries and wages ………… $196,165*
Less: Decrease in prepaid expenses …………………………….. 250
(4) Cash payments for interest
Interest expense …………………………………………………………… $ 413
(5) Cash payments for income tax
Income tax expense ………………………………………………………. $9,251