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Operating Cash Flows (Appendix) The following information was taken from Lambers

ID: 2415503 • Letter: O

Question

Operating Cash Flows (Appendix)

The following information was taken from Lamberson Company’s accounting records:

Additional information for the year:

Dividends declared and paid totaled $700.

On January 1, 2013, convertible preferred stock that had originally been issued at par value were converted into 500 shares of common stock. The book value method was used to account for the conversion.

Long-term nonmarketable investments that cost $1,600 were sold for $2,300.

The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the year.

Equipment with a cost of $2,000 and a book value of $300 was sold for $100. The company uses one Accumulated Depreciation account for all depreciable assets.

Equipment was purchased at a cost of $16,200.

The 12% bonds payable were issued on August 31, 2013, at 97. They mature on August 31, 2023. The company uses the straight-line method to amortize the discount.

Taxable income was less than pretax accounting income, resulting in a $396 increase in deferred taxes payable.

Explanation / Answer

Cash flows statement of the year ended 31st december,2013 is as follows

Cash flows from operating activities

Particulars                                                                                                                            Amount ($)

Net income                                                                           $ 4800

Add:    depreciation expence                                     2100

          bond interest expence                                     410

          loss on sale of equipment                                200

          income tax expence                                       2050                 4760

Less: gain of sale of investment                                (700)

dividend revenue    (820)                  (1520)                3240

operating cash flow before working capital changes        8040

working capital changes

decrease in accounts recievable    110

increase in marketable securities    (1300)

decrease in inventories 190   

increase in prepaid items (410)

       increase in accounts payable                                       350

         decrease in wages payable                                            (450)

       increase in interest payable                                          400                                        (1110)

        Net income after working capital changes                                                                                6930

         income tax

Cash flow from investing activities

   sale of investments                                                                                2300

   sale of equipment                                                                                   100

purchase of equipment                                                                           (16200)

dividend revenue                                                                                       840                      

   Net income from investing activities    (12960)

Cash flows from financing activities

dividend declared and paid                                                                       (700)

issue of bonds payable                                                                         10000

issue of common stock                                                                           7500

additional capital                                                                                   5000          

Net income from financing activities                                                                                            21800