A Simplified Balance Sheet For Planet Cafe Inc Contain The F
A Simplified Balance Sheet For Planet Cafe Inc Contain The Following
A simplified balance sheet for Planet Cafe Inc. contains the following amounts at the end of 2019 and 2020. Planet Cafe Inc. Balance Sheet As at October AssetsCurrent AssetsCash$13,000$8,200Accounts Receivable$11,500$11,100Prepaid Rent$3,500$1,700Food & Beverage Inventory$33,200$11,300Total Current Assets$61,200$32,300Long-Term AssetsEquipment$178,000$169,000Accumulated Depreciation$-28,000$-15,100Total Long-Term Assets$150,000$153,900Total Assets$211,200$186,200LiabilitiesCurrent Liabilities$17,700$17,700Long-Term Liabilities$25,000$43,000Total Liabilities$42,700$60,700Shareholders' EquityCommon Shares$78,000$57,000Retained Earnings$90,500$68,500Total Shareholders' Equity$168,500$125,500Total Liabilities and Equity$211,200$186,200
Assume current liabilities include only items from operations (e.g., accounts payable, taxes payable). Long-term liabilities include items from financing (e.g., bonds and other long-term liabilities). Note that the company did not sell any equipment and did not borrow any additional long-term liabilities throughout the year. Prepare the cash flow statement for 2020 using the indirect method. Assume no dividends were declared or paid in 2020. Do not enter dollar signs or commas in the input boxes. Use the negative sign for a decrease in cash.
Cash Flow Statement For the Year Ended October 31, 2020
Cash Flow from Operations
Net Income: Answer
Adjustments for Non-Cash Items
Depreciation Expense: Answer
Change in Current Assets and Current Liabilities
- Increase in Accounts Receivable: Answer
- Increase in Prepaid Rent: Answer
- Increase in Food & Beverage Inventory: Answer
Net Cash Provided (Used) by Operating Activities: Answer
Cash Flow from Investing Activities
Purchase of Equipment: Answer
Net Cash Provided (Used) by Investing Activities: Answer
Cash Flow from Financing Activities
- Issuance of Common Shares: Answer
- Repayment of Long-Term Liabilities: Answer
Net Cash Provided (Used) by Financing Activities: Answer
Net Increase (Decrease) in Cash: Answer
Cash at the Beginning of the Year: Answer
Cash at the End of the Year: Answer
Paper For Above instruction
The task involves preparing a cash flow statement for Planet Cafe Inc. for the year ending October 31, 2020, using the indirect method. This requires analyzing the balance sheets from 2019 and 2020, calculating changes in assets, liabilities, and equity, and reconciling these with the overall cash flow from operating, investing, and financing activities.
Step 1: Calculate net income for 2020.
Net income is determined by the change in shareholders' equity, excluding dividends since none were paid, and adjusting for non-cash expenses like depreciation. For Planet Café Inc., the retained earnings decreased from 90,500 to 68,500, indicating a net income of 68,500 - 90,500 + dividends (which is zero), equaling a net income of -22,000, reflecting a net loss.
Step 2: Adjust for non-cash items such as depreciation expense. The accumulated depreciation increased by 14,000 (from 28,000 to 15,100), so the depreciation expense for 2020 is 15,100 - 28,000 = 12,900.
Step 3: Assess changes in current assets and liabilities:
- Accounts receivable increased from 11,100 to 11,500, a decrease in cash flow (since more receivables tie up cash): -400
- Prepaid rent decreased from 3,500 to 1,700, indicating a cash inflow: 1,800
- Food & Beverage Inventory decreased from 33,200 to 11,300, resulting in a cash inflow: 21,900
Step 4: Calculate net cash from operating activities by summing net income, depreciation, and the changes in working capital:
Net cash from operating: (-22,000) + 12,900 + (-400 + 1,800 + 21,900) = -22,000 + 12,900 + 23,300 = 14,200
Step 5: Determine cash flows from investing activities:
The company purchased equipment valued at 169,000 compared to 178,000 a year earlier, indicating a net investment in equipment of -9,000. Since there was no sale of equipment, the cash flow from investing is a purchase of 9,000: -9,000.
Step 6: Calculate cash flows from financing activities:
- Issuance of common shares decreased from 78,000 to 57,000, which suggests either repurchase or dividend payout. Since no dividends were paid, the decrease indicates repurchase of shares, i.e., cash outflow of 21,000.
- Long-term liabilities increased from 25,000 to 43,000, indicating new borrowing, thus a cash inflow of 18,000.
Net cash from financing activities = -21,000 + 18,000 = -3,000
Step 7: Compute the net change in cash:
Net increase/decrease = Operating + Investing + Financing = 14,200 + (-9,000) + (-3,000) = 2,200
Step 8: Determine beginning and ending cash balances:
Beginning cash (2019): 8,200
Ending cash (2020): 8,200 + 2,200 = 10,400
This cash flow statement illustrates that despite losses and investments, the company increased its cash holdings primarily through financing activities, including borrowing, which reflects healthy liquidity management. Proper understanding of these cash flows helps stakeholders evaluate the company's operational efficiency and financial health.
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