The Sage Corp. prepared for 2005 and 2004, the following balance sheet data: ---
ID: 2378200 • Letter: T
Question
The Sage Corp. prepared for 2005 and 2004, the following balance sheet data:
----------------------------------------------------------------------------------------2005 2004
Cash............................................................................ 87,375 63,750
available-for-sale securities (not cash equivalents)............17,250 105,000
accounts receivable........................................................90,000 86,250
merchandise inventory..................................................187,500 163,500
prepaid insurance............................................................1,125 1,500
Land, Buildings, and equipment.......................................1,378,875 1,087,500
Accumulated depreciation..............................................(558,750) (498,750)
Total........................................................................$1,203,375 $1,008,750
Accounts Payable..........................................................153,375 236,250
Salaries Payable.............................................................18,750 26,250
Notes payable-bank (current).........................................37,500 150,000
Bonds payable..............................................................375,000 0
Common stock.............................................................600,000 600,000
Retained earnings (deficit).............................................18,750 (3,750)
Total.......................................................................$1,203,375 $ 1,008,750
Addtional information:
(a) sold available-for-sale securities (not cash equivalents) costing $87,750 for $90,000
(b) Equipment costing $18750 with a book value of $3,750 was sold for $4,500.
(c) Issued 8% bonds payable at par, $375,000.
(d) Purchased new equipment for cash, $310,125.
(e) Paid cash dividends of $22,500 during the year.
(f) Net Income for 2005 was $45,000.
(g) Proceeds from the notes payable were issued for operating purposes.
Prepare a cash flow statement for Sage Corp. for 2005, using the indirect method.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This is what I have so far.
Net Income Cash flow of operating Activity ----------45,000
Adjustments
Subtract: Accounts Receivable ---------(3,750)
Add: Merchendise Inventory --------------(24,000)
Add: Accumulated depreciation ---------60,000
Subtract: Prepaid Insurance --------------375
Add: Salaries Payable ---------------------(7,500)
Add: Accounts Payable -------------------(82,875)
Availeable-for-sale secuirities Gain ----(2,250)
Equipment sale gain ------------------------(750)
Net Cash from operating activities ------------------(15,750)
Cash flow from investment activities
Purchase Land, Building, and Equipment (310,125)
Availeable-for-sale secuirities -------------------87,750
Sale of equipemt --------------------------------------3,750
Net Cash in investing activities ---------------------------(218,625)
Cash flow from financial activities
Dividends -----------------------------(22,500)
Bonds Payable ---------------------375,000
Notes Payable ----------------------(112,500)
Net Cash from financial activities ----------------- 240,000
Net increase in Cash 23,625 (CORRECT ANSWER) 5,625 (MY ANSWER)
Cash Beginning --------63,750
Cash End -----------------87,375
What am I doing wrong? What confuses me is (b) equipment costing 18,750 with a book value of $3,750 was sold for $4,500. But I think I did it correctly.
(g) Proceeds from the notes payable were used for operating purposes. This also confused me. Since Notes payable went lower how could there be proceeds? Unless that loan was to pay off some of the operations, if so how would I write it?
Explanation / Answer
Net Income Cash flow of operating Activity ----------45,000
Adjustments
Subtract: Accounts Receivable ---------(3,750)
LESS: Merchendise Inventory --------------(24,000)
Add: Accumulated depreciation ---------60,000
Depreciation on Equipment 15000
ADD: Prepaid Insurance --------------375
Less: Salaries Payable ---------------------(7,500)
Less: Accounts Payable -------------------(82,875)
Availeable-for-sale secuirities Gain ----(2,250)
Equipment sale gain ------------------------(750)
Less:Notes payable--------------------------(112500)
Net Cash from operating activities ------------------(113250)
Cash flow from investment activities
Purchase Land, Building, and Equipment (310,125)
Availeable-for-sale secuirities -------------------90000
Sale of equipemt --------------------------------------4500
Net Cash in investing activities ---------------------------(215625)
Cash flow from financial activities
Dividends -----------------------------(22,500)
Bonds Payable ---------------------375,000
Net Cash from financial activities ----------------- 352500
Net increase in Cash 23,625
Cash Beginning --------63,750
Cash End -----------------87,375
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