2010 & 2011 Unaudited Cash Flow Statements and Assumptions

		Super Duper Electronics
		Cash Flow Statement
		For year end 2010
Cash flows from operating activities
Net Income							13,244
Adjustments to reconcile net income
to net cash provided by operating activities:
Decrease in accounts receivable (net)					-494
Increase in accounts payable					28,645
Facilities depreciation expense					12,405
Increase in inventory					-33,321
Increase in accrued expense					8,393
Increase in short-term debt					1,831
Increase in pre-paid expenses					-1,718
Unearned revenue*					2,523		18,264
Net cash provided by operating activities							31,508
Cash flows from investing activities
Purchase of property, plant, & equipment					-20,980
Increase in other assets					-4,141
Purchase of short term investments					-26,840
Net cash provided by investing activities							-51,961
Cash flows from financing activities
Issuance of common stock including paid in capital					5516
Convertible subordinate debentures					0
Increase in long-term debt					76
Unearned Revenue**					1,194
Net cash provided by financing activities							6,786
Net decrease in cash							-12,779
Cash at beginning of year							29,331
Cash at end of year							16,652

		Super Duper Electronics
		Cash Flow Statement
		For year end 2011 (Unaudited)
Cash flows from operating activities
Net Income							10,596
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in accounts receivable (net)					-8,600
Decrease in accounts payable					-1,701
Facilities depreciation expense					16,568
Increase in inventory					-49,208
Decrease in accrued expense					-11,533
Increase in short-term debt					47,317
Increase in pre-paid expenses					-8,276
Unearned revenue*					-55		-15,488
Net cash provided by operating activities							-4,892
Cash flows from investing activities
Purchase of property, plant, & equipment (net)					-29,544
Increase in other assets					-1,036
Purchase of short term investments					-95,117
Net cash provided by investing activities							-125,697
Cash flows from financing activities
Issuance of common stock including paid in capital					40043
Convertible subordinate debentures					80,975
Increase in long-term debt					758
Unearned Revenue**					1,508
Net cash provided by financing activities							123,284
Net decrease in cash							-7,305
Cash at beginning of year							16,652
Cash at end of year							9,347

Assumptions: There are a few assumptions as auditors that we would have to make when preparing Super Duper Electronics, Inc. cash flow statement. One assumption that we would make is the other assets account. As auditors, we would find out more about this account and we assume that the company’s other assets account does not consist of any property, plant, and equipment. We need to ask the client about what kind of assets are in this account, because different kinds of assets are either considered assets for operating, investing, or financing activities. As auditors, we assume that other assets are for the company’s operational activities. Another assumption that we would make is unearned revenue* (current estimate of warranty liability). Since the company is currently involved in selling warranties, we ended up placing the unearned revenue* account in the operational activities of the company’s cash flow statement. We included convertible subordinate debentures in the financing activities of the cash flow statement section, because convertible subordinate debentures are exchangeable debt that allows debt to be exchanged for equity of the company. The advantage for convertible subordinate debentures for the company is that if convertible debt changes to equity, the debt vanishes. As equity increases, the client’s earnings per share dilutes.

            There are a few red flags in the company’s unaudited cash flow statement that we need to take into account. One is the increase in accounts receivable (net). This was a red flag, because over the past two years, the client was experiencing a downward trend in accounts receivable (net). In 2011, this account had an increase (from $2,246 to $10,846). Also, there was a dramatic increase for 2010 to 2011 in the inventory account (from $59,864 to $109,072). By examining these figures in the financial reports, we can see that there was a big fluctuation in the inventory account. Lastly, accrued expenses had a sudden change in trend from increasing expenses to decreasing expenses. Errors in these accounts could have occurred from an employee accidentally typing in the wrong numbers in the computer or the company may have experienced software issues.


Christine & Lindsay