The following is a summary of the account balances of the Roll Tide Corporation
ID: 2418008 • Letter: T
Question
The following is a summary of the account balances of the Roll Tide Corporation for both the beginning and ending of the current accounting period:
Debits Dec 31, 2016 Jan 1, 2016
Cash 349,000 130,000
Accounts receivable 55,000 42,000
Inventory 15,000 27,000
Prepaid Insurance 12,000 13,000
Equipment 85,000 75,000
Cost of Goods Sold 450,000
Income Tax Expense 105,000
Other Operating Expenses (see #2) 200,000
Note Receivable 15,000 15,000
Credits Dec 31, 2016 Jan 1, 2016
Dividends Payable 14,500 0
Gain on Sale of Equipment 1,000
Interest Payable 2,000 1,500
Accumulated Depreciation – Equipment 50,000 56,000
Accounts payable 3,500 2,000
Income Taxes Payable 5,000 7,500
Long Term Notes Payable 50,000 45,000
Common Stock 120,000 90,000
Retained Earnings* 286,000 100,000
Net Sales 950,000
Interest Revenue 1,500
Dividend Revenue 3,000
*This is the ending balance to Retained Earnings after the closing entries have been made (Post Closing Balance).
The following additional information is available:
Equipment costing $20,000 was sold for $5,000; a gain of $1,000 was recognized on the sale.
Among other items, the operating expenses included interest expense of $2,500 and insurance expense of $3,000 and depreciation expense.
Equipment was purchased during the year for $30,000 and was paid for by issuing $30,000 worth of common stock.
Interest revenue of $1,500 was earned and received for a loan made in 2016.
Dividend revenue was received for common stock owned in Fully Invested Corporation.
A Long-Term note was signed on Dec 31, 2016 and $5,000 cash was received.
Hint: The first step is to prepare a single step Income Statement (revenues less expenses) and simple comparative balance sheet and then use this information to prepare a Statement of Cash Flow using the direct and indirect methods.
Required:
Prepare all three sections of the Statement of Cash Flow using the direct method and note any significant non-cash investing and financing activities.
Prepare the Operating section of the Statement of Cash Flow using the indirect method.
Statement of Cash Flows
Operating Section
Investing Section
Financing Section
Statement of Cash Flows
Operating Section
Investing Section
Financing Section
Explanation / Answer
cash flow from operating activity
cash received from accounts receivable 937000
[ (Net sale - ( 55000-42000)]
less: cash payment 437500
{cost of goods sold - 12000inventory -500(payable)
less: interest expense(1500 +2500 -2000) 2000
less: prepaid expense 2000
less: other operating expense 184500
(200000 - 10000 depreciation -2500 -3000)
less: income tax(7500 +105000 - 5000) 107500
add: extra ordinary item (profit on sale of equipment) 1000
net cash flow from the operating activity 204500
cash flow from investing activity
sale of equipment 5000
5000
cash flow from financial activity
Interest Revenue 1,500
Dividend Revenue 3,000
proceed from Long-Term note $5,000
9500
Net increase in cash and cash equivalent 219000
add: cash and cash equivalent in beginning 130000
cash and cash equivalent at ending 349000
Note:- depreciation on the equipment sold
= machine cost + gain - sale
= 20000 +1000 - 5000
=$16000
depreciation charged for the year:
= (ending accumulated + machine sold)-Beginning accumlulated
= 50000 + 16000 - 56000
= $10000
insurance expense
=insurance expense - ( opening preapid - closing prepaid )
= 3000 - (13000 -12000)
= 3000 - 1000
= 2000
Non cash transaction
Equipment was purchased during the year for $30,000 and was paid for by issuing $30,000 worth of common stock.
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