Presented below are the comparative balance sheets and income statement for Wayfarer Inc., a private company reporting under ASPE.

Additional information:

1. Cash dividends of $10,800 were declared on December 30, 2021, payable on January 15, 2022.

2. A long-term investment was acquired for cash at a cost of $176,400.

3. Depreciation expense is included in the operating expenses.

4. The company issued 22,500 common shares on March 2, 2021 in exchange for additional equipment. The fair value of the shares was $10 per share.

5. Equipment that originally cost $45,000 was sold during the year for cash. The equipment had a net book value of $16,200 at the time of sale.

6. The company issued a note payable for $90,000 and repaid $9,000 of it by year end.

7. Accounts payable is used for merchandise purchases.

8. Accounts receivable relate to merchandise sales.

Instructions

a. Prepare a cash flow statement for the year using the indirect method.

b. Prepare the operating section of the cash flow statement using the direct method.

Taking It Further

Wayfarer Inc.?s cash balance decreased by $55,800 in 2021. Briefly explain what caused this, using the cash fl ow statement. Should management be concerned about this decrease? Explain.

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WAYFARER INC. Balance Sheet December 31 Assets 2021 2020 $ 120,600 $ 176,400 Cash Accounts receivable 181,800 135,000 Inventory Long-term investments Property, plant, and equipment Accumulated depreciation 369,000 257,400 176,400 1,008,000 828,000 (252,000) (292,500) $1,563,300 $1,144,800 Liabilities and Shareholders' Equity $ 157,500 $ 117,000 Accounts payable Dividends payable Income tax payable Long-term notes payable Common shares Retained earnings 10,800 28,800 25,200 81,000 1,170,000 945,000 54,000 118,800 $1,563,300 $1,144,800 WAYFARER INC. Income Statement Year Ended December 31, 2021 Sales $1,137,600 Cost of goods sold Gross profit 772,200 365,400 Operating expenses Loss on sale of equipment $265,500 3,600 269,100 Profit from operations Interest expense 96,300 5,400 (9,900) (4,500) Interest revenue Profit before income tax 100,800 25,200 Income tax expense Profit 2$ 75,600