he 2014 comparative balance sheet and 2014 income statement of Simple Things Industries Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors.   Simple Things Industries Ltd. Comparative Balance Sheet December 31, 2014 and 2013   2014 2013 Increase/(Decrease)         Assets          Cash      190,000            30,000  ?    Accounts Receivable      220,000         230,000  ?    Supplies      340,000         310,000  ?    Prepaid expenses        10,000            30,000  ?    Intangible assets        90,000            90,000  ? Equipment, net      900,000         790,000  ? Total Assets  1,750,000    1,480,000         Liabilities          Accounts payable      140,000            90,000  ?    Accrued liabilities      160,000         190,000  ?    Income tax payable      140,000         120,000  ? Long-term notes payable      450,000         500,000  ?       Stockholders' Equity       Common Stock      310,000         200,000  ? Retained earnings      640,000         400,000  ? Treasury stock      (90,000)          (20,000)  ? Total liabilities and stockholders' equity  1,750,000    1,480,000     Simple Things Industries Ltd Income Statement Year Ended December 31,2014 Revenues and gains:        Sales revenue  1,900,000      Gain on sale of Equipment        60,000         Total revenues and gains        1,960,000 Expenses        Cost of goods sold      850,000      Depreciation expense      190,000      Other operating expense      360,000         Total expenses        1,400,000 Income before income taxes           560,000 Income tax expense           180,000 Net Income           380,000   Notes     Acquisition of Equipment during 2014           450,000 Sale proceed from sale of Equipment           210,000 Receipt for issuance of notes payable              50,000 Payment for note payable           100,000 Dividend paid           140,000 Book value of equipment sold           150,000 Requirements: 1. Reconstruct the company’s comparative balance sheet for 2013/2014 using the information and compute and show the missing figures to include the appropriate sign as a positive or negative figure. 2. Which category of the statement of cash flow is considered as the most important? Why? 3. Prepare a complete statement of cash flows for 2014 using the indirect method using the information.

Question

The 2014 comparative balance sheet and 2014 income statement of Simple Things Industries Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors.

 

Simple Things Industries Ltd.

Comparative Balance Sheet

December 31, 2014 and 2013

 

2014

2013

Increase/(Decrease)

        Assets

 

 

 

   Cash

     190,000

           30,000

 ?

   Accounts Receivable

     220,000

        230,000

 ?

   Supplies

     340,000

        310,000

 ?

   Prepaid expenses

       10,000

           30,000

 ?

   Intangible assets

       90,000

           90,000

 ?

Equipment, net

     900,000

        790,000

 ?

Total Assets

 1,750,000

   1,480,000

 

      Liabilities

 

 

 

   Accounts payable

     140,000

           90,000

 ?

   Accrued liabilities

     160,000

        190,000

 ?

   Income tax payable

     140,000

        120,000

 ?

Long-term notes payable

     450,000

        500,000

 ?

      Stockholders' Equity

 

 

 

Common Stock

     310,000

        200,000

 ?

Retained earnings

     640,000

        400,000

 ?

Treasury stock

     (90,000)

         (20,000)

 ?

Total liabilities and stockholders' equity

 1,750,000

   1,480,000

 

 

Simple Things Industries Ltd

Income Statement

Year Ended December 31,2014

Revenues and gains:

 

 

   Sales revenue

 1,900,000

 

   Gain on sale of Equipment

       60,000

 

      Total revenues and gains

 

     1,960,000

Expenses

 

 

   Cost of goods sold

     850,000

 

   Depreciation expense

     190,000

 

   Other operating expense

     360,000

 

      Total expenses

 

     1,400,000

Income before income taxes

 

        560,000

Income tax expense

 

        180,000

Net Income

 

        380,000

 

Notes

   

Acquisition of Equipment during 2014

 

        450,000

Sale proceed from sale of Equipment

 

        210,000

Receipt for issuance of notes payable

 

           50,000

Payment for note payable

 

        100,000

Dividend paid

 

        140,000

Book value of equipment sold

 

        150,000

Requirements:

1. Reconstruct the company’s comparative balance sheet for 2013/2014 using the information and compute and show the missing figures to include the appropriate sign as a positive or negative figure.

2. Which category of the statement of cash flow is considered as the most important? Why?

3. Prepare a complete statement of cash flows for 2014 using the indirect method using the information.

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