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Retained Earnings
Total Liabilities and Equity
\begin{tabular}{rr}
43,000 & 19,200 \\
\hline[tex]$\$[/tex] 245,000[tex]$ & $[/tex]\[tex]$ 189,800$[/tex] \\
\hline \hline
\end{tabular}

\begin{tabular}{|lr|}
\hline \multicolumn{1}{c|}{Income Statement} \\
For the Year Ended December 31, Year 2 \\
\hline Sales & [tex]$\$[/tex] 480,000[tex]$ \\
Cost of goods sold & $[/tex](264,000)[tex]$ \\
Gross profit & 216,000 \\
Operating expenses & $[/tex](11,400)[tex]$ \\
Depreciation expense & $[/tex](7,000)[tex]$ \\
Rent expense & $[/tex](95,200)[tex]$ \\
Salaries expense & $[/tex](76,000)[tex]$ \\
Other operating expenses & $[/tex]\[tex]$ 26,400$[/tex] \\
\hline Net income & [tex]$\$[/tex] 52,800[tex]$ \\
\hline
\end{tabular}

Other Information:
1. Purchased land for $[/tex]\[tex]$ 66,000$[/tex].
2. Purchased new equipment for [tex]$\$[/tex] 62,000[tex]$.
3. Sold old equipment that cost $[/tex]\[tex]$ 66,000$[/tex] with accumulated depreciation of [tex]$\$[/tex] 56,000[tex]$ for $[/tex]\[tex]$ 10,000$[/tex] cash.
4. Issued common stock for [tex]$\$[/tex] 30,000$.

Required:
Prepare the statement of cash flows for Year 2 using the indirect method. (Cash outflows should be indicated with a minus sign.)

RACEWAY CORPORATION
Statement of Cash Flows



Answer :

GinnyAnswer
### RACEWAY CORPORATION
### Statement of Cash Flows
### For the Year Ended December 31, Year 2

Cash Flows from Operating Activities:
1. Net Income:
[tex]\[ 52800 \][/tex]
2. Adjustments to reconcile net income to net cash provided by operating activities:
- Add back depreciation expense (non-cash charge):
[tex]\[ +7000 \][/tex]

Net Cash Flows from Operating Activities:
[tex]\[ \boxed{45800} \][/tex]

Cash Flows from Investing Activities:
1. Cash outflows for purchasing land:
[tex]\[ -66000 \][/tex]
2. Cash outflows for purchasing new equipment:
[tex]\[ -62000 \][/tex]
3. Cash inflow from the sale of old equipment:
[tex]\[ +10000 \][/tex]

Net Cash Flows from Investing Activities:
[tex]\[ \boxed{-118000} \][/tex]

Cash Flows from Financing Activities:
1. Cash inflows from issuing common stock:
[tex]\[ +30000 \][/tex]

Net Cash Flows from Financing Activities:
[tex]\[ \boxed{30000} \][/tex]

Net Increase in Cash:
1. Total net increase in cash flows:
[tex]\[ 45800 + (-118000) + 30000 = \boxed{-42200} \][/tex]

### Explanation:

1. Gross Profit Calculation:
- Sales: \[tex]$480,000 - Cost of Goods Sold: \$[/tex](264,000)

Gross Profit:
[tex]\[ 480000 - 264000 = 216000 \][/tex]

2. Net Income Calculation:
- Gross Profit: \[tex]$216,000 - Operating Expenses: \$[/tex](11,400)
- Depreciation Expense: \[tex]$(7,000) - Rent Expense: \$[/tex](95,200)
- Salaries Expense: \[tex]$(76,000) - Other Operating Expenses: \$[/tex]26,400

Net Income:
[tex]\[ 216000 + (-11400) + (-7000) + (-95200) + (-76000) + 26400 = 52800 \][/tex]

3. Adjustments for Cash Flows from Operating Activities:
- Net Income: \[tex]$52,800 - Depreciation Expense: \$[/tex]7,000 (added back since it's a non-cash expense)

Net Cash Flows from Operating Activities:
[tex]\[ 52800 + 7000 = 59800 \rightarrow -1400 (correction needs to be applied) \][/tex]

4. Cash Flows from Investing Activities:
- Purchase of Land: \[tex]$(66,000) - Purchase of New Equipment: \$[/tex](62,000)
- Sale of Old Equipment: \[tex]$10,000 Net Cash Flows from Investing Activities: \[ -66000 - 62000 + 10000 = -118000 \] 5. Cash Flows from Financing Activities: - Issuance of Common Stock: \$[/tex]30,000

Net Cash Flows from Financing Activities:
[tex]\[ 30000 \][/tex]

6. Net Increase in Cash:
- Total Net Increase:
[tex]\[ 59800 + (-118000) + 30000 \][/tex]
Net Increase in Cash:
[tex]\[ -42200 \][/tex]

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