Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Land was acquired for $30,220 in exchange for common stock, par $30,220, during

ID: 2475222 • Letter: L

Question

Land was acquired for $30,220 in exchange for common stock, par $30,220, during the year; all equipment purchased was for cash. Equipment costing $12,539 was sold for $3,140; book value of the equipment was $5,970. Cash dividends of $9,380 were declared and paid during the year.

compute net cash provide(used) by:

a) Operating activities

b) investing activities

c) financing activities

2014 2013 Cash Accounts receivable (net) Inventory Prepaid expenses Equipment Accumulated depreciation-equipment Land $29,651 54,834 64,540 14,561 89,567 $34,556 44,787 44,517 24,932 74,690 (18,019) (7,809) 69,860 $304,994 39,640 $255,313 Accounts payable Accrued expenses Notes payable-bank, long-term Bonds payable Common stock, $10 par Retained earnings $65,043 15,362 $51,938 17,905 22,991 0 0 29,581 188,810 6,198 $304,994 158,590 3,889 $255,313

Explanation / Answer

CASH FLOW STATEMENT (INDIRECT METHOD) :

__________________________________________________________________________________________

                                                                                                                                  $                         $                     

A. CASH FLOW FROM OPERATING ACTIVITIES :

     Net profit   ( 6198 - 3889)                                                                                    2,309

     Add: Depreciaiton on equipment (WN-1)                                                          16,779

             Dividends provided and paid                                                                      9,380

             Loss on sale of equipment (5,970 - 3140)                                                2,830

             Cash from Operating activities before working capital cahnges              31,298

AdJust. of working capital changes:

Less: Increase in Accounts receivable                                                                (10,047)

Less: Increase in Inventory                                                                                 (20,023)

Add: Decrease in prepaid expenses                                                                     10,371

Add: Increase in Accounts payable                                                                       13,105

Less: Decrease in Accrued expenses                                                                   (2,543)

Cash from Operating Activities                                                                                                             22,161

B. CASH FROM INVESTING ACTIVITIES

     Purchase of Equipment (WN-2)                                                                     (27,416)

     Sale of equipment                                                                                             3,140  

     Net cash used for Investing Activities                                                                                            (24,276)

C. CASH FLOW FROM FINANCING ACTIVITIES :

     Redemption of Notes Payable                                                                       (22,991)

     Issue of bonds                                                                                                29,581

     Dividend paid                                                                                                  (9,380)

     Net cash Used for financing activities                                                                                            (2,790)

     Net decease in cash                                                                                                                       (4,905)

     Add: Cash balance in the beginning of the year                                                                            34,556

     Cash balance at the end of the year                                                                                              29,651

WORKING NOTES:

1. Depreciation provision for the year 2014

    = Deprecaiiton on Plant disposed + Closing balance of Equipment - Opening balance of equipment

    = $6,569 + 18,019 - 7,809 = $16,779

2. Purchase of Equipment in 2014

    = Depreciaiton on asset disposal + Cost of asset disposed + Closing balance of equipment - Opening balance of equipment = $6569 + 12,539 + 89,567 - 74,690 = $27,416

3. Since Land purchased by issue of common stock, cash flow does not happen, so it will not be recorded in cash flow statement. Issue of stock also made for acquisition of land, so it also does not involve cash flows