Question

Refer to Gazelle Corporation’s financial statements and related information in Problem 12-3B.

Required

Prepare a complete statement of cash flows; report its operating activities according to the direct method. Disclose any noncash investing and financing activities in a note.

Short answer

Net changes in cash totals$61,900.

Step-by-step solution

Definition of Prepaid Expenses

The expenses of the business entity that are paid in advance are known as prepaid expenses. These expenses are initially recorded as current assets and then recorded as expenses when they are incurred.

Statement of cash flow using the direct method

Particular	Amount $	Amount $
Cash from customers$\left(\$1,185,000+\$3,650\right)$		$1,188,650
Cash to vendors $\left(\$595,000+\$84,250-\$10,100\right)$		(669,150)
Cash for operating expenses $\left(\$362,850-\$1,900\right)$		(360,950)
Income tax expenses		(28,350)
Cash flow from operations		$130,200
Cash flow from investing activities
Sale of equipment	26,050
Purchase of equipment	($43,250)
Cash flow used in investing activities		($17,200)
Cash flow from financing activities
Short-term note payable	$5,000
Payment for long-term note payable	(47,500)
Shares issued	45,000
Cash dividend	(53,600)
Cash flow used in financing activities		($51,100)
Net changes in cash		$61,900
Add: beginning cash balance		(61,550)
Ending cash balance		$123,450

Notes disclosure:

Noncash investing and financing activities include acquiring equipment against the long-term note payable.