Given the Following Changes in the Balance Sheet for Year

question 100

Essay

Given the following changes in the balance sheet for Year 2 of the Cotton Company, prepare a statement of cash flows using the indirect method.
$\begin{array}{ll}\text { Change In }&D R(C R)\\\text { Cash } & 90,000 \\\text { Accounts receivable } & 10,000 \\\text { Inventory } & (20,000) \\\text { Accounts payable } & 10,000 \\\text { Notes payable } & (50,000) \\\text { Equipment } & 40,000 \\\text { Accumulated depreciation } & (20,000) \\\text { Retained eamings } & (50,000) \\\text { Common stock } & (10,000)\end{array}$ No dividends were paid during the year and no equipment was sold during the year.

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Definitions:

Incremental Profit

The additional profit derived from a specific business decision, comparing the profit levels before and after the decision.

Selling Price

The amount at which a product or service is sold to customers.

Variable Cost

Financial outlays that fluctuate based on the activity levels or production volumes within a company.

Fixed Cost

Expenses that do not change with the level of production or sales in the short term, such as rent, salary, and insurance.