Question
Atlas Manufacturing's statement of financial position at December 31, 2024 showed:
| Account | Amount |
|---|
| Cash | 22,000 |
| Accounts Receivable | 28,000 |
| Inventory | 35,000 |
| Equipment | 90,000 |
| Accumulated Depreciation - Equipment | (30,000) |
| Accounts Payable | 18,000 |
| Income Tax Payable | 5,000 |
| Notes Payable (long-term) | 25,000 |
| Share Capital - Ordinary | 60,000 |
| Retained Earnings | 37,000 |
During 2025:
- Sales revenue was $260,000 and cost of goods sold was $150,000.
- Operating expenses were: salaries and wages $40,000, rent $9,000, and depreciation $12,000.
- Equipment that had cost $15,000 (accumulated depreciation $9,000) was sold for $7,500 cash.
- New equipment was purchased for $32,000 cash.
- Interest expense of $2,500 was paid in cash. Income tax expense was $14,400; income tax payable increased by $1,200.
- Accounts receivable increased by $6,000, inventory decreased by $3,500, and accounts payable increased by $3,000.
- Ordinary shares were issued for $12,000 cash, $5,000 of the long-term notes was repaid, and cash dividends of $10,000 were paid.
Instructions:
- Prepare a multi-step income statement for the year ended December 31, 2025.
- Prepare a statement of financial position at December 31, 2025.
- Prepare a statement of cash flows for 2025 using the indirect method.
Statements in this challenge
- Income StatementIncome Statement
- Statement of Financial PositionBalance Sheet
- Cash Flow StatementCash Flow
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 7 — Statement of Cash Flows
Start from profit, then undo everything in it that was not cash. Add back non-cash charges such as depreciation and amortisation, remove gains and losses that belong to investing activities, and then adjust for the movement in each working-capital account. The reconciliation is finished only when the closing cash figure agrees with the balance sheet.
Common mistakes
- Getting the sign of a working-capital movement backwards — a rise in a current asset consumes cash, a rise in a current liability provides it.
- Leaving a gain on disposal inside operating cash flow as well as showing the full proceeds under investing, which counts it twice.
- Classifying the purchase of non-current assets as operating rather than investing.
IFRS vs US GAAP: IFRS permits interest and dividends paid to be shown as operating or financing; US GAAP fixes interest paid in operating.
Further readingDirect vs indirect method cash flow