Reference no: EM133170027

Question - The following is an excerpt of the comparative balance sheets of Smart Engineering Company ('SEC') as at 31 December 20X1 and 20X0:

	31 Dec
	20X1	20X0
Current assets:	$'thousand	$'thousand
Cash and cash equivalents	485	83
Accounts receivable	312	357
Inventories	180	65
Prepaid expenses	25	12
Current liabilities:
Accounts payable	278	105
Unearned revenue	337	154
Dividend payable	30	40

In addition, during the year ended 31 December 20X1, SEC recorded the following transactions:

Cash purchase of office furniture	$265,000
Depreciation expense	$17,000
Issuance of long-term debt	$154,000
Purchase of treasury shares	$79,000
Proceeds from sale of equipment	$175,000
Gain on sale of equipment	$62,000
Net income	$87,000
Payment of cash dividend	$40,000

Required -

1) Prepare SEC's statement of cash flows for the year ended 31 December 20X1 using the available data. Use the indirect method to report cash flows from operating activities.

2) The cash balance of SEC increased a lot from the end of 20X0 to 20X1. Do you think the cash flow of SEC is healthy? Comment on the cash flow situation of SEC, stating two observations in your analysis of the cash flow of SEC.