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(SCF-Direct and Indirect Methods) Comparative balance sheet accounts of Sharpe c

ID: 2468610 • Letter: #

Question

(SCF-Direct and Indirect Methods) Comparative balance sheet accounts of Sharpe compare presented below. Additional data: Equipment that cost $10,000 and was 60% depreciated was sold in 2012. Cash dividends were declared and paid during the year. Common stock was issued in exchange for land. Investments that cost $35,000 were sold during the year. There were no write-offs of uncollectible accounts during the year. Sharpe's 2012 income statement is as follows. Instructions Prepare a statement of cash flows using the indirect method

Explanation / Answer

(b) cash flow from operating activity

Net income $67000

less: gain on sale (15000)

add: loss on sale 3000

Add: Depreciation(13000+9000) 22000   

add: income tax provision 45000

Net income after adjustment 122000

Less:Increase in Receivable(less:doubtful) (23000)

less: increase in inventory (14000)

add: increase in accounts payable 6000

less: income tax paid (10000 +45000 -12000) (43000)

Net cash generated from operating activity 48000

Cash flow from financial activity

proceed from common stock (310000 - 260000 -15000(for exchange of land)] 35000

Payment of long term payable (8000)   

Cash dividend (70000)

Net cash generated from the financial activity (43000)

Cash flow from investing activity

purhcase of equipment (at cost)[70000+10000 -48000] (32000)

sale of equipment 1000

sale of investment (35000 + 15000) 50000 Purhcase of investment(55000+35000- 85000) ( 5000)

Net cash generated from the Investing activity $14000

Net increase in cash and cash equivalent $19000

add: cash and cash equivalent beginning $51000

cash and cash equivalent ending $70000

Note:- cash dividend declare and paid :

   Closing retained earning = opening retained earning + net income - dividend

   92000 = 95000 + $67000 - Cash dividend

   Cash dividend = 95000 + 67000 - 92000

   Cash Dividend = $70000

Depreciaition charged to income statement

   On Equipment (accumulated depreciation) = (60% *10000) +21000 - 14000

  = $13000

   On Building (accumulated depreciation ) = $37000 - $28000

   = $9000

loss on sale of equipment = (cost of equipment - Accumulated depreciation ) - sale value of equipment

   3000 = (10000 - 6000) - sale value

   sale value = $1000