Solve the Weimer Cash Flow Problem below. Use the Excel Worksheet approach. Incl

Question

Solve the Weimer Cash Flow Problem below. Use the Excel Worksheet approach. Include conversion to the direct method for cash from operations. Attach Solution to your Pre-Exam.

Weimer LTD Co.

A. Comparative balance sheets for 2011 and 2010 and an income statement for 2011 are provided below for Weimer LTD Corp. Additional information from the accounting records of Weimer LTD Corp. also is provided.

Weimer LTD Corp.

Comparative Balance Sheets

December 31, 2011 and 2010 ($ in 000)

Assets: 2011 2010

Cash $785 $1,325

Accounts receivable 1,800 1,390

Allowance for bad debts (35) (40)

Inventory 2,400 1,575

Land 2,300 1,800

Building 6,300 6,300

Less: Accumulated depreciation (900) (810)

Equipment 7,750 6,750

Less: Accumulated depreciation (1,585) (1,440)

$18,815 $16,850

Liabilities:

Accounts payable $1,950 $1,175

Income tax payable 400 250

Accrued expenses payable 800 850

Lease liability – land 725 0

Note payable 100 100

Less: Discount (20) (25)

Bonds Payable 200 150

Shareholders’ Equity:

Common stock 9,450 9,000

Paid-in capital – excess of par 2,250 2,025

Retained earnings 2,980 3,325

Less: Treasury stock (20) 0

$18,815 $16,850

Weimer LTD Corp.

Income Statement

For year ended December 31, 2011 ($ in 000)

Revenues:

Sales $7,935

Gain on sale of land 175 $8,110

Expenses:

Cost of goods sold $1,800

Depreciation expense 1,035

Loss on sale of equipment 20

Lower of cost or market inventory adj. 300

Equipment impairment charge 800

Bad debt expense 50

Interest expense 25

Operating expenses 1,400 5,430

Income before tax $2,680

Income tax expense 1,000

Net income 1,680

Additional information from the accounting records:

a. During 2111, equipment with a cost of $1,000 (80% depreciated) was sold.

b. During 2011, land with a cost of $225 was sold.

c. The Statement of Shareholders’ equity reveals reductions of $675 for stock dividends and $1,350 for cash dividends.

d. During 2011, land was acquired by signing a long term lease.

Required:

1. Prepare the statement of cash flow by the indirect method using the worksheet format. Although a “formal” statement is not required, your finished product should have all the information disclosed on a formal statement.

2. Prepare “cash flows from operating activities” by the direct method using the conversion schedule

Explanation / Answer

CASH FLOW STATEMENT - DIRECT METHOD

CASH FLOW STATEMENT (INDIRECT METHOD) Cash from operating activities: Net income 1680 Profit on sale of land -175 depreciation 1035 loss on equipment 20 inventory adjustment 300 equipment impairment 800 interest expense 25 bad debt expense 50 income tax expense 1000 4735 Working capital adjustment increase in AR -465 increase in inventory -1125 increase in accounts payable 775 Decrease in accrued exp -50 increase in notes payable 5 income tax paid -850 3025 3025 Cash from investing activities Equipment purchased -2800 Sale of land 400 sale of equipment 180 -2220 -2220 Cash from financing activities interest -25 cash dividends -1350 treasury stock -20 bonds issued 50 -1345 -1345 Net cash from operating, -540 financing and investing activities Opening balance of cash 1325 Closing balance of cash 785

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