Question
Cobalt Ridge Ltd's statement of financial position at December 31, 2024 showed:
| Account | Amount |
|---|
| Cash | 18,500 |
| Accounts Receivable | 24,000 |
| Inventory | 30,000 |
| Land | 25,000 |
| Equipment | 80,000 |
| Accumulated Depreciation - Equipment | (26,000) |
| Accounts Payable | 16,500 |
| Notes Payable (long-term) | 20,000 |
| Share Capital - Ordinary | 75,000 |
| Retained Earnings | 40,000 |
During 2025:
- Sales revenue was $310,000 and cost of goods sold was $186,000.
- Operating expenses were: salaries and wages $46,000, rent $11,000, and depreciation $14,000.
- The land, which had cost $25,000, was sold for $31,000 cash.
- Equipment was acquired at a total cost of $40,000: Cobalt Ridge paid $15,000 cash and issued ordinary shares with a fair value of $25,000 for the balance. (Disclose the share issue as a non-cash investing and financing activity, as IAS 7 requires.)
- Interest expense of $2,200 was paid in cash. Income tax expense was $14,200, all paid in cash during the year (tax rate 25%).
- Accounts receivable increased by $5,500, inventory decreased by $4,000, and accounts payable increased by $2,500.
- $5,000 of the long-term notes was repaid, and cash dividends of $12,000 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, including the required disclosure of non-cash investing and financing activities.
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