The 20X2 income statement and comparative balance sheets for 20X2 and 20X1, plus
ID: 2435738 • Letter: T
Question
The 20X2 income statement and comparative balance sheets for 20X2 and 20X1, plus two pieces of additional information for Summertime Inc. are given below. Use this information to help you answer the question given below.
Summertime Inc.
Income Statement
For the Year Ended December 31, 20X2
Sales
$320,000
COGS
(180,000)
Gross Profit
140,000
Operating Expenses
(includes depreciation of $8,000)
(56,000)
Other Revenue & Expenses and Gains & Losses:
Loss on sale of investments
(4,000)
Income before taxes
88,000
Income tax expense
(26,000)
Net Income
$ 62,000
Summertime Inc.
Balance Sheet
December 31, 20X2
December 31, 20X1
Assets:
Cash
$189,000
$30,000
A/R
104,000
80,000
Inventory
92,000
95,000
Prepaids
4,000
8,000
Total current assets
389,000
213,00
Long-term investments
0
10,000
Equipment (net)
43,000
38,000
Total Assets
$432,000
$261,000
Liabilities:
A/P
$70,000
$40,000
Accrued Expenses
5,000
6,000
Current portion of long-term debt
0
10,000
Total current liabilities
75,000
56,000
Bonds Payable
45,000
45,000
Total liabilities
120,000
101,000
Common Stock [$1 par value]
40,000
40,000
Preferred Stock [$30 par value]
60,000
0
APIC
140,000
100,000
Treasury Stock [400 shares, at cost]
(8,000)
0
Retained Earnings
80,000
20,000
Total Stockholders’ Equity
312,000
160,000
Total Liabilities & Stockholders’ Equity
$432,000
$261,000
Additional information is as follows: (1). Detail related to Equipment is given below:
12/31/X2
12/31/X1
Equipment
$61,000
$48,000
Less: A/D
(18,000)
(10,000)
Carrying value
43,000
38,000
There were no disposals of equipment in 20X2.
(2). A $2,000 dividend was declared and paid in 20X2.
Under the "indirect method" used to compute the net cash flow from operating activities, which one of the following statements is incorrect (false) with respect to the 20X2 statement of cash flows (SCF) for Summertime Inc.?
a. the $140,000 gross profit is not directly used in computing the net cash flow from operating activities
b. current assets increased $176,000, and current liabilities increased $19,000, therefore the net cash provided by operating activities for 20X2 must equal $157,000
c. the increase in A/R of $24,000 is subtracted from net income in arriving at the net cash flow from operating activities
d. the $4,000 loss on sale of long-term investments is added back to net income in arriving at the net cash flow from operating activities
Summertime Inc.
Income Statement
For the Year Ended December 31, 20X2
Sales
$320,000
COGS
(180,000)
Gross Profit
140,000
Operating Expenses
(includes depreciation of $8,000)
(56,000)
Other Revenue & Expenses and Gains & Losses:
Loss on sale of investments
(4,000)
Income before taxes
88,000
Income tax expense
(26,000)
Net Income
$ 62,000
Explanation / Answer
b. current assets increased $176,000, and current liabilities increased $19,000, therefore the net cash provided by operating activities for 20X2 must equal $157,000.
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