Example 1:
Shiner Corporation started business on Jan 1 1995 by issuing 60,000 shares of $1 par stock
for $60,000. During the first year Shiner paid dividends to shareholders of $14,000.
| Comparative Balance Sheet | ||
| Shiner Corporation |
||
| Assets | Dec 31, 1995 | Jan 1, 1995 |
| Cash | $49,000 | $0 |
| Accounts Receivable | $36,000 | $0 |
| Total Assets | $85,000 | $0 |
Liabilities and Stockholder Equity |
||
| Accounts Payable | $5,000 | $0 |
| Common Stock | $60,000 | $0 |
| Retained Earnings | $20,000 | $0 |
Total Liabilities and Stockholder Equity |
$85,000 | $0 |
| Income Statement | |
| Shiner Corporation |
|
| Revenue | $125,000 |
| Operating Expenses | $85,000 |
| Income before Income Taxes | $40,000 |
| Income Tax Expense | $6,000 |
| Net Income | $34,000 |
| Step 1: | Change in Cash: Dec 31 Balance minus Jan 1 minus ($49,000-0)=$49,000 |
| Step 2: Net Cash flow from Operating Activities |
||
| Direct Method: |
||
| Cash collected from Revenues | $89,000 | |
| Cash payments for Expenses | $80,000 | |
| Income before Income Taxes | $9,000 | |
| Cash payment of taxes | $6,000 | |
| Net cash flow from Operating Activities | $3,000 | |
| Indirect Method: |
||
| Net Income | $34,000 | |
| Adjustments to reconcile net income to net cash | ||
| Accts Receivable Increase | ($36,000) | |
| Accts Payable Increase | $5,000 | |
| ($31,000) | ||
| Net cash flow from Operating Activities | $3,000 | |
| Step 3: | |
| Investing Activities | |
| NO investment activities occurred during the period. | |
| Financing Activities | |
| Dividend payment to shareholders | $14,000 |
| Issuance of Common Stock | $60,000 |
Statement of Cash Flows |
||
| Cash Flow from Operating Activities | ||
| Net Income | $34,000 | |
| Adjustments to reconcile net income to net cash | ||
| Accts Receivable increase | ($36,000) | |
| Accts Payable increase | $6,000 | ($31,000) |
| Net cash provided from Operating Activities | $3,000 | |
| Cash Flow from Investing Activities | ||
| Net Cash from Investing Activities | $0 |
|
| Cash Flow from Financing Activities | ||
| Dividend Payments | ($14,000) | |
| Issuance of Common Stock | $60,000 | |
| Net Cash from Financing Activites | $46,000 |
|
| Net Increase in Cash | $49,000 |
|
| Cash Balance Jan 1, 1995 | $0 |
|
| Cash Balance Dec 31, 1995 | $49,000 |
|