\r\nDells Company\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nIncome Statement\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nFor Year Ended June 30, 2015\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\n| Sales<\/td>\r\n | <\/td>\r\n | \u00a0$\u00a0 1,000,000.00<\/td>\r\n<\/tr>\r\n | \r\n| Cost of goods sold<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 600,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Salaries and wages expense<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 200,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Rent expense<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 40,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Depreciation expense<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 20,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Interest expense<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 3,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Loss on sale of equipment<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,000.00<\/span><\/td>\r\n | \u00a0<\/span><\/td>\r\n<\/tr>\r\n\r\n| \u00a0 Total Expenses<\/td>\r\n | <\/td>\r\n | \u00a0$\u00a0 870,000.00<\/span><\/td>\r\n<\/tr>\r\n\r\n| Income before federal taxes<\/td>\r\n | <\/td>\r\n | \u00a0$\u00a0 130,000.00<\/td>\r\n<\/tr>\r\n | \r\n| \u00a0 Less: Federal income taxes<\/td>\r\n | <\/td>\r\n | \u00a0\u00a0\u00a0(60,000.00)<\/span><\/td>\r\n<\/tr>\r\n\r\nNet Income<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0\u00a0 70,000.00<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nTo start the operating section, what do we need?\u00a0 We need net income, depreciation expense and any gains or losses (do not make this harder than it is -- you must see the words \"gain\" or \"loss\" or do not consider it a gain or loss):\r\n\r\n\t- Net Income is $70,000<\/li>\r\n\t
- Add depreciation expense $20,000<\/li>\r\n\t
- Add loss on sale of equipment $7,000<\/li>\r\n<\/ul>\r\nOur statement of cash flows looks like this:\r\n
\r\n\r\n\r\nDells Company\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nStatement of Cash Flows\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nFor Year Ended June 30, 2015\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nCash flows from operating activities:<\/strong><\/td>\r\n<\/tr>\r\n\r\n| Net Income<\/td>\r\n | <\/td>\r\n | \u00a0$\u00a0 70,000.00<\/td>\r\n<\/tr>\r\n | \r\nAdjustments to reconcile net income to net cash:\u00a0<\/em><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\n| Depreciation expense<\/td>\r\n | \u00a0$\u00a0 20,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Loss on sale of equipment<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNow we move on to\u00a0the balance sheet for the CURRENT assets and liabilities.\u00a0 Notice the increase (or decrease) has already been calculated for you but if not you would take the current year amount - previous year amount.\u00a0 If the current year is more, there is an increase and if the current year is less that is a decrease.\r\n\r\n\r\n\r\nDells Company\u00a0\u00a0\u00a0<\/strong><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\nComparative Balance Sheet\u00a0\u00a0\u00a0<\/strong><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\nJune 30\u00a0 2015 and 2014\u00a0\u00a0\u00a0<\/strong><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\n| <\/td>\r\n | 2015<\/strong><\/td>\r\n2014<\/strong><\/td>\r\nIncrease (Decrease)<\/strong><\/td>\r\n<\/tr>\r\n\r\nAssets<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nCurrent Assets:<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0\u00a0 30,000.00<\/td>\r\n | \u00a0$\u00a0\u00a0 80,000.00<\/td>\r\n | \u00a0$ (50,000.00)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Accounts Receivable, Net<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 160,000.00<\/td>\r\n | \u00a0\u00a0\u00a0 100,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 60,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Merchandise Inventory<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 100,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 70,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 30,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Prepaid Rent<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 20,000.00<\/span><\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 10,000.00<\/span><\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 10,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| \u00a0 Total Current Assets<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0 310,000.00<\/td>\r\n | \u00a0$\u00a0\u00a0260,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nProperty, plant, and equipment:<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Equipment<\/td>\r\n | \u00a0$\u00a0\u00a0 400,000.00<\/td>\r\n | \u00a0$\u00a0 200,000.00<\/td>\r\n | \u00a0$ 200,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Accumulated Depreciation - Equipment<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 (60,000.00)<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 (50,000.00)<\/td>\r\n | \u00a0\u00a0 (10,000.00)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| \u00a0 Total Property, plant, and equipment<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0340,000.00<\/span><\/td>\r\n | \u00a0$\u00a0\u00a0 150,000.00<\/span><\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nTOTAL ASSETS<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0650,000.00<\/strong><\/td>\r\n\u00a0$\u00a0 410,000.00<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nLiabilities and Equity<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nCurrent Liabilities:<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Accounts Payable<\/td>\r\n | \u00a0$\u00a0\u00a0 50,000.00<\/td>\r\n | \u00a0$\u00a0\u00a0 40,000.00<\/td>\r\n | \u00a0$\u00a0 10,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Notes Payable - bank<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 50,000.00<\/td>\r\n | \u00a0\u00a0\u00a0 (50,000.00)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Salaries Payable<\/td>\r\n | \u00a010,000.00<\/td>\r\n | \u00a0\u00a0\u00a0 20,000.00<\/td>\r\n | (10,000.00)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Federal Income Taxes Payable<\/td>\r\n | \u00a030,000.00<\/span><\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 20,000.00\u00a0 <\/span><\/td>\r\n | 10,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| \u00a0\u00a0 Total Current Liabilities<\/td>\r\n | $\u00a0 90,000.00<\/td>\r\n | \u00a0$\u00a0 130,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nStockholder's Equity:<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Common stock, $10 par<\/td>\r\n | \u00a0$\u00a0\u00a0 300,000.00<\/td>\r\n | \u00a0$\u00a0\u00a0 100,000.00<\/td>\r\n | \u00a0$ 200,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Paid in capital in excess of par, Common<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 50,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 0<\/td>\r\n | \u00a0\u00a0 \u00a0 50,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Retained earnings<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 210,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0 180,000.00<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 30,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| \u00a0 Total Stockholder' s Equity<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0\u00a0560,000.00<\/span><\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0280,000.00<\/span><\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nTOTAL LIABILITIES AND EQUITY<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0\u00a0 650,000.00<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0 410,000.00<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe will use the current assets (other than cash) and the current liabilities (other than the notes payable - bank which we will report in financing).\u00a0 Remember, we ADD decreases and SUBTRACT increases in current assets but in current liabilities we will ADD increases and SUBTRACT decreases.\r\n\r\n\t- Accounts Receivable increased $60,000 so we will\u00a0SUBTRACT $60,000 since this is a current asset<\/li>\r\n\t
- Merchandise inventory increased $30,000 so we will subtract $30,000<\/li>\r\n\t
- Prepaid Rent increased $10,000 so we will subtract $10,000<\/li>\r\n\t
- Accounts Payable increased $10,000 but we will ADD $10,000 since this is a current liability<\/li>\r\n\t
- Salaries Payable decreased $10,000 so we will subtract $10,000<\/li>\r\n\t
- Federal Income Taxes payable increased $10,000 so we will add $10,000<\/li>\r\n<\/ul>\r\nWith this information, we can finish the operating section as follows:\r\n
\r\n\r\n\r\nDells Company\u00a0\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nStatement of Cash Flows\u00a0\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nFor Year Ended June 30, 2015\u00a0\u00a0\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nCash flows from operating activities:<\/strong><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\n| Net Income<\/td>\r\n | <\/td>\r\n | \u00a0$ 70,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nAdjustments to reconcile net income to net cash:\u00a0<\/em><\/td>\r\n| <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Depreciation expense<\/td>\r\n | \u00a0$\u00a0 20,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Loss on sale of equipment<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Increase in Accounts Receivable<\/td>\r\n | \u00a0\u00a0 (60,000.00)<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Increase in Merchandise inventory<\/td>\r\n | \u00a0\u00a0 (30,000.00)<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Increase in Prepaid rent<\/td>\r\n | \u00a0\u00a0 (10,000.00)<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Increase in Accounts Payable<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 10,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Decrease in Salaries Payable<\/td>\r\n | \u00a0\u00a0 (10,000.00)<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Increase in Federal income Taxes Payable<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0 10,000.00<\/span><\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| \u00a0\u00a0 Total adjustments<\/td>\r\n | <\/td>\r\n | \u00a0$(63,000.00) <\/span><\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nNet cash provided by operating activities<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0$\u00a0\u00a07,000.00\u00a0\u00a0 <\/strong><\/td>\r\n<\/tr>\r\n\r\n[$70,000 net income + (-63,000) in adjustments]<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhat does this tell us about the company?\u00a0 It tell us the company was able to generate $7,000 of cash from its day to day business operations.\u00a0 This could cause a concern since the company owes $90,000 in the next year (see current liabilities on the balance sheet).\u00a0 But let's look at the other sections to see what else we can learn.\r\n2.\u00a0 Investing Section<\/h4>\r\nFor the investing section, we will use the balance sheet and any additional information provided.\u00a0\u00a0 On the balance sheet, the only long term asset we have comes from property, plant and equipment and is the Equipment account.\u00a0 \u00a0During 2015, equipment was sold for $3,000 cash\u00a0with an original\u00a0cost of\u00a0$20,000 and $10,000 of accumulated depreciation.\u00a0 Additional equipment was purchased for\u00a0$220,000 cash.\u00a0 Let's look at these transactions:\r\n\r\n\t- Equipment was sold for $3,000 cash (we do not need to know the rest of the information as the important part is the amount of cash).\u00a0 Notice how the $10,000 book value of the equipment ($20,000 cost - $10,000 accumulated depreciation) less the $3,000 cash received is the loss reported on the balance sheet of $7,000.<\/em>\u00a0 If we sold equipment, we receive cash so we will add the $3,000 cash.<\/li>\r\n\t
- Dells purchased additional equipment for $220,000 cash so they paid cash.\u00a0 We will subtract the $220,000 cash paid.<\/li>\r\n<\/ul>\r\nThe investing section would look like this:\r\n
\r\n\r\n\r\nCash flows from investing activities:<\/strong><\/td>\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash received from sale of equipment<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0 3,000.00<\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash paid for new equipment<\/td>\r\n | \u00a0 (220,000.00<\/span>)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nNet cash used by investing activities<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n$ (217,000) \u00a0<\/strong><\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNotice how the net cash heading changed from provided in by the operating section to \"used\" by investing since the number is negative.\u00a0 We have a negative cash flow for investing, is that good or bad?\u00a0 Dells Company sold old equipment and purchased new equipment with CASH not with a loan!\u00a0 This is a good thing.\u00a0 When analyzing this section, you really want to see the asset sold because you are purchasing new ones -- it is not a good sign to sell assets without replacing them.\u00a0 Since Dells was able to pay cash for the equipment and not take out a loan, how did they pay for it?\u00a0 We know it was not from the day to day business because the operating activities cash was pretty low.\u00a0 So, we will look to the financing section for answers.\r\n3.\u00a0 Financing Section<\/h4>\r\nFor the financing section, we will use the balance sheet and the statement of retained earnings.\u00a0 On the balance sheet, we are looking at the notes payable - bank from the current liability section and any other long term liabilities.\u00a0 If these balances increased, we can assume we received cash and if the balances decreased, we can assume we paid on the debt unless we are given additional information on the subject.\u00a0\u00a0 Notes Payable is the only liability we haven't already accounted for on the balance sheet.\u00a0 Next we look at the Equity section of the balance sheet.\u00a0 We have common stock, paid in capital and retained earnings.\u00a0 Common stock and paid in capital both increased -- why does this account increase?\u00a0 It increases when we issue shares of common stock.\u00a0 We will assume Dells issued the stock for cash unless we are given additional information to the contrary.\u00a0 In our case, we are given no additional information so we will assume all increases or decreases involve cash.\u00a0 Lastly, we have retained earnings.\u00a0 What is involved in retained earnings?\u00a0 Let's look at the statement of retained earnings to find out.\r\n\r\n\r\n\r\nDells Company<\/strong>\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nStatement of Retained Earnings<\/strong>\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\nFor Year Ended June 30, 2015<\/strong>\u00a0<\/strong><\/td>\r\n<\/tr>\r\n\r\n| Retained Earnings, June 30 2014<\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0 180,000.00<\/td>\r\n<\/tr>\r\n | \r\n| Add: 2015 Net Income<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 70,000.00<\/span><\/td>\r\n<\/tr>\r\n\r\n| <\/td>\r\n | \u00a0$\u00a0\u00a0\u00a0 250,000.00<\/td>\r\n<\/tr>\r\n | \r\n| Deduct: Cash Dividends<\/td>\r\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (40,000.00)<\/span><\/td>\r\n<\/tr>\r\n\r\nRetained Earnings, June 30 2015<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0\u00a0 210,000.00<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nRetained earnings includes the beginning retained earnings + net income - dividends to get the ending retained earnings balance.\u00a0 What do we need for the statement of cash flows?\u00a0 We already accounted for net income in the operating section but we need to know dividends.\u00a0 We will assume cash dividends unless the information given tells us otherwise.\u00a0 In this case, it shows we paid cash dividends.\r\n\r\n\t- Notes Payable - Bank decreased by $50,000, we assume we paid cash of $50,000 in 2015 and we will subtract cash<\/li>\r\n\t
- Common stock increased $200,000 and paid in capital increased $50,000 so the total cash received was $250,000 ($200,000 + $50,000) which will be added<\/li>\r\n\t
- Cash dividends of $40,000 were paid and we will subtract cash<\/li>\r\n<\/ul>\r\nThe financing section will look like this:\r\n
\r\n\r\n\r\nCash flows from financing activities:<\/strong><\/td>\r\n| <\/td>\r\n<\/tr>\r\n | \r\n| Cash paid for notes payable<\/td>\r\n | \u00a0$\u00a0(50,000.00)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash received from issuing stock<\/td>\r\n | \u00a0\u00a0\u00a0 250,000.00<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash paid for dividends<\/td>\r\n | \u00a0\u00a0\u00a0 (40,000.00<\/span>)<\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\nNet cash provided by financing activities<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 160,000.00<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNow we know how Dells was able to purchase new equipment with cash, by issuing stock.\u00a0 This helped Dells in the current year but what about next year when they owe $90,000?\u00a0 We need to put all 3 sections together to finish the picture.\r\n4.\u00a0 Net Increase (Decrease) in Cash<\/h4>\r\nThe final part of the statement of cash flows is to calculate a Net Increase (or Decrease if negative) in Cash by adding the net cash from operating, investing and financing.\u00a0 Cash flows from Operating is $7,000 + Investing $(217,000) + Financing $160,000 which gives a net decrease<\/strong> in cash of $(50,000).\u00a0 We then take this increase (or decrease) and add it to the beginning cash balance (which is the previous year cash balance from the balance sheet) to get a calculate Ending Cash Balance which should agree to the cash balance reported on the balance sheet for the current year.\u00a0 We can always check our work with a built in check figure of ending cash!\u00a0 This last section would look like this:\r\n\r\n\r\n\r\nNet Increase (or Decrease) in Cash<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0$ (50,000.00)\u00a0 <\/strong><\/td>\r\n<\/tr>\r\n\r\n| <\/td>\r\n | <\/td>\r\n | <\/td>\r\n<\/tr>\r\n | \r\n| Cash Balance, 2014<\/td>\r\n | <\/td>\r\n | \u00a0$\u00a0\u00a0 80,000.00<\/span><\/td>\r\n<\/tr>\r\n\r\nCash Balance, 2015<\/strong><\/td>\r\n\u00a0<\/strong><\/td>\r\n\u00a0$\u00a0\u00a0 30,000.00<\/strong><\/td>\r\n<\/tr>\r\n\r\n| [ $80,000 2014 cash balance + (50,000 decrease) ]<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nTo see the full statement of cash flows, click Dells Cash Flow<\/a>","rendered":" We will look at each section of the statement of cash flows and put them all together at the end.\u00a0 The Dells Company is preparing their annual financial statements for the year ended June 30, 2015.\u00a0 They have prepared the income statement, statement of retained earnings, and balance sheet.\u00a0 Now, we need to prepare the statement of cash flows.<\/p>\n 1.\u00a0 Operating Section<\/h4>\nFor the operating section, we need the income statement.\u00a0 Dells Company income statement is below.<\/p>\n \n\n\nDells Company\u00a0\u00a0<\/strong><\/td>\n<\/tr>\n\nIncome Statement\u00a0\u00a0<\/strong><\/td>\n<\/tr>\n\nFor Year Ended June 30, 2015\u00a0\u00a0<\/strong><\/td>\n<\/tr>\n\n| Sales<\/td>\n | <\/td>\n | \u00a0$\u00a0 1,000,000.00<\/td>\n<\/tr>\n | \n| Cost of goods sold<\/td>\n | \u00a0$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 600,000.00<\/td>\n | <\/td>\n<\/tr>\n | \n| Salaries and wages expense<\/td>\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 200,000.00<\/td>\n | <\/td>\n<\/tr>\n | \n| Rent expense<\/td>\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 40,000.00<\/td>\n | <\/td>\n<\/tr>\n | \n| Depreciation expense<\/td>\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 20,000.00<\/td>\n | <\/td>\n<\/tr>\n | \n| Interest expense<\/td>\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 3,000.00<\/td>\n | <\/td>\n<\/tr>\n | \n| Loss on sale of equipment<\/td>\n | \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 7,000.00<\/span><\/td>\n | \u00a0<\/span><\/td>\n<\/tr>\n\n| \u00a0 Total Expenses<\/td>\n | <\/td>\n | \u00a0$\u00a0 870,000.00<\/span><\/td>\n<\/tr>\n\n| Income before federal taxes<\/td>\n | <\/td>\n | \u00a0$\u00a0 130,000.00<\/td>\n<\/tr>\n | \n| \u00a0 Less: Federal income taxes<\/td>\n | <\/td>\n | \u00a0\u00a0\u00a0(60,000.00)<\/span><\/td>\n<\/tr>\n\nNet Income<\/strong><\/td>\n\u00a0<\/strong><\/td>\n| \u00a0$\u00a0\u00a0\u00a0 70,000.00<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n To start the operating section, what do we need?\u00a0 We need net income, depreciation expense and any gains or losses (do not make this harder than it is — you must see the words “gain” or “loss” or do not consider it a gain or loss):<\/p>\n | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |