Cash at the end of the year is supposed to be 158,300. I am off by 49,100. What
ID: 2378175 • Letter: C
Question
Cash at the end of the year is supposed to be 158,300. I am off by 49,100. What am I missing???!!
Details below:
The comparative balance sheet of TorMax Technology, Inc. at December 31, 2010 and 2009, is as follows:
ASSETS DEC 31 2010 DEC 31 2009
CASH 158300 128900
ACCOUNTS RECEIVABLE (NET) 237600 211500
INVENTORIES 317100 365200
PREPAID EXPENSES 11300 9000
LAND 108000 108000
BUILDINGS 612000 405000
ACCUMULATED DEPRECIATION - BUILDING -166500 -148080
MACHINERY AND EQUIPTMENT 279000 279000
ACCUMULATED DEPRECIATION -
MACHINERY AND EQUIPTMENT -76500 -68400
PATENTS 38200 43200
TOTAL 1518500 133350
LIAB AND STOCKHOLDERS EQUITY
ACCOUNTS PAY (MERCHANIDISE CREDITORS) 299100 331100
DIVIDENDS PAYABLE 11700 9000
SALARIES PAYABLE 28200 31100
MORTGAGE NOTE PAYABLE, DUE 2017 80000 X
BONDS PAYABLE X 140000
COMMON STOCK, $1 PAR 23000 18000
PAID-IN CAPITAL IN EXCESS OF -
PAR COMMON STOCK 180000 45000
RETAINED EARNINGS 896500 759150
TOTAL 1518500 1333350
An examination of the income statement and the accounting records revealed the following additional information applicable to 2010:
A. Net income, $184,150.
B. Depreciation expense reported on the income statement: buildings, $18,450; machinery and equipment, $8,100.
C. Patent amortization reported on the income statement, $5,000.
D. A building was constructed for $207,000.
E. A mortgage note for $80,000 was issued for cash.
F. 5,000 shares of common stock were issued at $28 in exchange for the bonds payable.
G. Cash dividends declared, $46,800.
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. If needed, use the minus sign to indicate cash outflows or a decrease in cash.
Explanation / Answer
We need to find a net change in cash of $29,400 ($158,300 - $128,900). With that in mind, let's solve the problem.
1. ) First of all, I noted a couple errors in the operating activities section:
The decreases in both Accounts Payable and Salaries Payable should be decreases to operating cash flows, not increases. Think about it as we are paying off debt, thus cash decreases. With these adjustments made and leaving everything else the same, net cash flows from operating activities should equal $200,500.
2.) The investing activities section is correct. Net cash flows remain at ($207,000).
3.) I noted a couple of issues with the financing activities section. First, since the common stock was issued in exchange for the bond payable of the same amount, $140,000, these two items cancel out. Therefore, no cash is involved and this transaction should be reported in a non-cash section that is separate from the three main sections.
Second, with regard to the dividends, if you will look closely, you will see that Dividends Payable increased by $2,700. That means that we did not pay out the entire $46,800, but rather $44,100 ($46,800 - $2,700).
With the $140,000 figure removed and the adjustment of $2,700 made to the dividends paid and leaving everything else the same, the net cash flows from financing activities should be $35,900.
4.) So if we net our new totals together we should get the right answer:
$200,500 - $207,000 + $35,900 = $29,400
Check it with the net change from one year to the next:
$128,900 + $29,400 = $158,300
Hope that helps. Please rate. Thanks.
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