Question

Jennifer’s Wedding Shops earned net income of \(27,000, which included depreciation of \)16,000. Jennifer’s acquired a \(119,000 building by borrowing \)119,000 on a long-term note payable.

Requirements

1. How much did Jennifer’s cash balance increase or decrease during the year?
2. Were there any non-cash transactions for the company? If so, show how

they would be reported in the statement of cash flows.

Short answer

(1) There is an increase in cash balance by $43,000 during the year.

(2) Yes, there are non-cash transactions. Depreciation will be reported in the cash flow statement under operating activity section, and building purchased by long term notes payable will be separately under non-cash investing and financing activity.

Step-by-step solution

Calculation of Net Increase/(decrease) in cash

Jennifer’s wedding shop Statement of Cash Flow (partial)
Cash Flow from Operating activities	$27,000
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation Expenses	$16,000
Net Increase(decrease) in cash	$43,000

Non-cash transactions and their reporting

Non-cash transactions are those transactions that do not involve the transfer of cash and cash equivalents.

Depreciation of $16,000 is a non-cash operating expense and it is shown in the cash flow statement by adding back to the net income so that net income reconciles with net cash flows from operating activities.

Acquisition of building $119,000 by borrowing $119,000 on a long-term note payable is a non-cash investing and financing activity and it will be reported in a separate part of the statement of cash flows. The reporting of this non-cash investing and financing activity will be as follows:

Jennifer’s wedding shop Statement of Cash Flow (partial)
Non-cash Investing and Financing Activities:
Acquisition of a building by borrowing a long-term loan payable	$119,000
Total Non-Cash Investing and Financing activities	$119,000