Question

Satu Company, a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

SATU COMPANY Comparative Balance Sheets December 31, 2017 and 2016

2017

2016

Assets:
Cash	\(58,750	\)28,400
Accounts receivables	20,222	25,860
Total current assets	78,972	54,260
Inventory	165,667	140,320
Equipment	107,750	77,500
Accumulated depreciation	(46,700)	(31,000)
Total assets	\(305,689	\)241,080
Liability and equity
Account payable	\(20,372	\)157,530
Income tax payable	2,100	6,100
Total current liabilities	22,472	163,630
Equity
Common stock, \(5 par value	40,000	25,000
Paid-in-capital in excess of par value, common stock	68,000	20,000
Retained earnings	175,217	32,450
Total liabilities and equity	\)305,689	\(241,080

SATU COMPANY Income Statement For Year Ended December 31, 2017

Sales		\)750,800
Cost of goods sold		269,200
Gross profit		481,600
Operating expenses
Depreciation expenses	15,700
Other expenses	173,933	189,633
Income before taxes		291,967
Income tax expenses		89,200
Net income		\(202,767

Additional Information on Year 2017 Transactions

a. Purchased equipment for \)30,250 cash.

b. Issued 3,000 shares of common stock for \(21 cash per share.

c. Declared and paid \)60,000 of cash dividends.

Required

Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method

Short answer

Net changes in cash$30,350.

Step-by-step solution

Definition of Retained Earnings

Retained earnings refer to a part of a business's net profit that is kept aside for dividend payments for the future and re-investment.

Statement of cash flow using the indirect method

Particular	Amount $	Amount $
Cash flow operating activities:
Net income		$202,767
Add/Less: Adjustments to the net income
Depreciation expenses	$15,700
Add/Less: Changes in current assets and liabilities
Decrease in accounts receivable	5,638
Increase in inventory	(25,347)
Decrease in accounts payable	(137,158)
Decrease in income tax payable	($4,000)	(145,167)
Cash flow from operating activities		$57,600
Cash flow from investing activities:
Purchased equipment	(30,250)
Cash flow used in investing activities		($30,250)
Cash flow from financing activities:
Common stock issued	63,000
Cash dividend paid	(60,000)
Cash flow from financing activities		$3,000
Net changes in cash		$30,350
Add: Beginning cash balance		28,400
Ending cash balance		$58,750