Natalie has prepared the balance sheet and income statement of Cookie & Coffee
Creations Inc. for the first year of operations, but does not understand how to prepare the cash
flow statement.The income statement and balance sheet appear below. Recall that the company
started operations on November 1, 2012, so all of the opening balances are zero.
Additional information:
1. Recall from Chapter 15 that the company bought kitchen equipment (a commercial oven)
for $17,000 on November 1, 2012, and signed a $12,000 note payable to help pay for it.The
terms provide for semiannual fixed principal payments of $2,000 on May 1 and November 1
of each year, plus interest of 5%. All other furniture, fixture, and equipment were purchased
during the year for cash.
2. Recall from Chapter 14 that the company originally issued 25,930 common shares for
$25,930, of which 750 shares were repurchased from the lawyer for $500.
COOKIE & COFFEE CREATIONS INC.
Income Statement
Year Ended October 31, 2013
Sales $462,500
Cost of goods sold 231,250
Gross profit 231,250
Operating expenses
Salaries and wages expense $92,500
Depreciation expense 9,850
Other operating expenses 35,987 138,337
Income from operations 92,913
Other expenses
Interest expense 413
Income before income tax 92,500
Income tax expense 18,500
Net income $ 74,000
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31, 2013
Assets
Current assets
Cash $32,219
Accounts receivable 3,250
Inventory 17,897
Prepaid expenses 6,300 $ 59,666
Property, plant, and equipment
Furniture and fixtures $12,500
Accumulated depreciation”furniture and fixtures (1,250) 11,250
Computer equipment 4,200
Accumulated depreciation”computer equipment (600) 3,600
Kitchen equipment 83,000
Accumulated depreciation”kitchen equipment (8,300) 75,000 89,850
Total assets $149,516
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 5,848
Income tax payable 18,500
Dividends payable 700
Salaries payable 2,250
Interest payable 188
Note payable”current portion 4,000 $ 31,486
Long-term liabilities
Note payable”long-term portion 6,000
Total liabilities 37,486
Stockholders’ equity
Paid-in capital
Preferred stock, 2,800 shares issued and
outstanding $ 14,000
Common stock, 25,930 shares issued, 25,180
outstanding 25,930 39,930
Retained earnings 72,600
Total paid-in capital and retained earnings 112,530
Less: Treasury stock”common (750 shares), at cost (500)
Total stockholders’ equity 112,030
Total liabilities and stockholders’ equity $149,516
Instructions
(a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended
October 31, 2013, using the indirect method.
(b) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended
October 31, 2013, using the direct method.