Problem 2 (25 points). The comparative balance sheets for the years ending Decem
ID: 2433223 • Letter: P
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Problem 2 (25 points). The comparative balance sheets for the years ending December 31, 20X0 and 20X1 for Douglas Corporation are attached. Additional financial information about Douglas Corporation is provided below DOUGLAS CORPORATION ADDITIONAL INFORMATION FOR PREPARATION OF STATEMENT OF CASH FLOWS FOR YEAR ENDING DECEMBER 31, 20x1 (1) The company purchased land for $15,000 by issuing 2,000 shares of common stock. The (2) The company purchased $60,000 of equipment by issuing a long tem note payable. The (3) The company sold equipment that had an original cost of S20,000 and a book value of company also issued 7,000 shares of common stock for cash during the year. company also purchased equipment for cash. S11,000. The proceeds from the sale were $8,000. All other changes to the accumulated depreciation account were due to the depreciation expense for the period. (4) The company made no purchases or sales of patents during the year (5) The company made repayments on the long term notes. No other notes were issued other than the note discussed in (2) above. (6) Net income for the year was $70,000. All other changes to retained earnings were due to dividends paid during the year REQUIRED: Prepare, in proper form, a statement of cash flows, using the indirect method, for Douglas Corporation for the year ending December 31,20x1Explanation / Answer
Douglass Corporation statement of Cash Flows For the Year Ended Decmber 31st 20X1 Cash Flows from Operating Activities Net Income(Given) $ 70,000.00 Depreciation Expense $ 22,000.00 Amortization of Patent($15000-$10000) $ 5,000.00 Loss on sale of Equipment $ 1,000.00 Increase in accounts receivable($36000-$28000) $ (8,000.00) Increase in Inventory($90000-$85000) $ (5,000.00) Decrease in Prepaid expenses($1500-$2000) $ 500.00 Decrease in accounts payable($21000-$24000) $ (3,000.00) Increase in Note Payable(Short Term) $ 1,000.00 Increase in Income Tax Payable($5500-$4000) $ 1,500.00 $ 15,000.00 Net Cash provided by operating activities $ 85,000.00 Cash flows from Investing Activities Purchase of plant and equipment $ (35,000.00) Sale of Equipment $ 8,000.00 Net Cash provided by Investing Activities $ (27,000.00) Cash Flow from financing activities Repayment of Long Term Note Payable $ (65,000.00) Issue of common Stock $ 40,000.00 Dividend Paid $ (29,500.00) $ (54,500.00) Net Increase in cash $ 3,500.00 Cash Balance on 20X0 $ 16,500.00 Cash 31st December 20X1 $ 20,000.00 Accumulated Depreciation To Plant & Machinery A/c (transfer) $ 11,000.00 By Balance b/d $ 50,000.00 To Balance C/d $ 61,000.00 By Depreciation(Balancing figure) $ 22,000.00 (Statement of profit & loss) $ 72,000.00 $ 72,000.00 Equipment Particular Amount Particular Amount To Balance b/d $ 1,75,000.00 By Bank A/c $ 8,000.00 To Long Term Note Payable $ 60,000.00 By Accumulated Depreciation $ 11,000.00 To Bank $ 35,000.00 By Loss on sale of Equipment A/c $ 1,000.00 By Balance C/d $ 2,50,000.00 $ 2,70,000.00 Common Stock Particular Amount Particular Amount By Balance B/d $ 1,50,000.00 By Land $ 15,000.00 By Cash $ 40,000.00 By Bal c/d 205000 $ 2,05,000.00 Dividend Paid Retained Earning beginning 78500 Add: Net Income 70000 Less: Ending Retained Earnings 119000 Dividend Paid 29500 Long Term Note Payable Particular Amount Particular Amount By Balance B/d $ 40,000.00 By Equipment $ 60,000.00 To Bank $ 65,000.00 By Bal c/d $ 35,000.00 $ 1,00,000.00
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