Question

Presented below is the 2021 income statement and comparative balance sheet information for Tiger Enterprises.

TIGER ENTERPRISES
Income Statement
For the Year Ended December 31, 2021
($ in thousands)
Sales revenue $ 9,000
Operating expenses:
Cost of goods sold $ 3,800
Depreciation expense 280
Insurance expense 300
General and administrative expense 2,200
Total operating expenses 6,580
Income before income taxes 2,420
Income tax expense (968)
Net income $ 1,452
Balance Sheet Information ($ in thousands) Dec. 31,2021 Dec. 31, 2020
Assets:
Cash $ 380 $ 240
Accounts receivable 770 870
Inventory 700 640
Prepaid insurance 90 40
Equipment 2,500 2,000
Less: Accumulated depreciation (920) (640)
Total assets $ 3,520 $ 3,150
Liabilities and Shareholders' Equity:
Accounts payable $ 320 $ 400
Accrued liabilities (for general & administrative expense) 320 440
Income taxes payable 220 190
Notes payable (due 12/31/2022) 1,040 800
Common stock 980 840
Retained earnings 640 480
Total liabilities and shareholders' equity $ 3,520 $ 3,150
Required:
Prepare Tiger’s statement of cash flows, using the indirect method to present cash flows from operating activities. (Hint: You will have to calculate dividend payments).

Answer 1

Answer and Explanation:

The Preparation of Tiger’s statement of cash flows, using the indirect method is shown below:-

TIGER ENTERPRISES

Income Statement

For the Year Ended December 31, 2021

Particulars Amount

Cash flow from operating activities

Net income $1,452

Non cash adjustment effects

Depreciation expenses $280

Changes in operating assets and liabilities

Decrease in accounts receivable $100

Increase in inventory ($60)

Increase in prepaid insurance ($50)

Decrease in accounts payable ($80)

Decrease in accrued liabilities ($120)

Increase in income tax payable $30 $100

Net cash flow from operating activities $1,552

Cash flow from investing activities

Equipment purchased ($500)

Net cash flow investing activities ($500)

Cash flow from financing activities

Issuance of notes payable $240

Issuance of common stock $140

Payment of dividends ($1,292)

Net cash flow from financing activities ($912)

Net increase in cash $140

Jan 1 Cash $240

Dec 32 Cash $380

Working note:-

Retained earning Opening balance $480

Add: Net income $1,452

Less: Retained earning closing balance $640

Paid dividend $1,292