PXE Company presented the following comparative balance sheets at December 31, 2
ID: 2499249 • Letter: P
Question
PXE Company presented the following comparative balance sheets at December 31, 2005 and 2006, and the income statement for the year ended December 31, 2006:
PXE Company
Balance Sheets
December 31, 2006 and 2005
December 31, 2006
December 31, 2005
Assets
Cash
$ 12,200
$ 28,200
Accounts receivable
16,000
18,000
Inventory
19,500
22,000
Prepaid rent
200
300
Total current assets
$ 47,900
$ 68,500
Land
58,000
30,000
Equipment
65,000
60,000
Accumulated depreciation
(11,000)
(4,000)
Total assets
$159,900
$154,500
Liabilities and stockholders’ equity
Accounts payable
$ 13,000
$ 25,000
Salaries payable
2,000
2,500
Interest payable
2,500
4,000
Income tax payable
6,500
3,000
Dividends payable
4,000
0
Total current liabilities
$ 28,000
$ 34,500
Long-term notes payable
10,000
40,000
Common stock, $1 par
30,000
28,000
Preferred stock, $4 par
24,000
10,000
Additional paid-in capital
45,000
30,000
Retained earnings
22,900
12,000
Total liabilities and stockholders’ equity
$159,900
$154,500
PXE Company
Income Statement
For the Year Ended December 31, 2006
Sales
$ 400,000
Cost of goods sold
(250,000)
Gross profit
$ 150,000
General and administrative expenses
$80,000
Salaries expense
31,000
Rent expense
3,600
Depreciation expense
7,000
Total operating expenses
(121,600)
Other revenue and expenses:
Gain on sale of land
$ 3,000
Interest revenue
300
Interest expense
(2,800)
500
Income before income taxes
$ 28,900
Income tax expense
(8,000)
Net income
$ 20,900
Additional information:
a. The company declared dividends in the amount of $10,000 during the year.
b. Additional land and equipment were purchased for cash.
c. Land that had originally cost $9,000 was sold for $12,000 cash.
d. All accounts payable are related to merchandise purchases.
e. The company uses a perpetual LIFO inventory system and uses straight-line depreciation for all depreciable assets.
Required:
1. Prepare the operating activities section of the statement of cash flows using the indirect method.
PXE Company
Balance Sheets
December 31, 2006 and 2005
December 31, 2006
December 31, 2005
Assets
Cash
$ 12,200
$ 28,200
Accounts receivable
16,000
18,000
Inventory
19,500
22,000
Prepaid rent
200
300
Total current assets
$ 47,900
$ 68,500
Land
58,000
30,000
Equipment
65,000
60,000
Accumulated depreciation
(11,000)
(4,000)
Total assets
$159,900
$154,500
Liabilities and stockholders’ equity
Accounts payable
$ 13,000
$ 25,000
Salaries payable
2,000
2,500
Interest payable
2,500
4,000
Income tax payable
6,500
3,000
Dividends payable
4,000
0
Total current liabilities
$ 28,000
$ 34,500
Long-term notes payable
10,000
40,000
Common stock, $1 par
30,000
28,000
Preferred stock, $4 par
24,000
10,000
Additional paid-in capital
45,000
30,000
Retained earnings
22,900
12,000
Total liabilities and stockholders’ equity
$159,900
$154,500
Explanation / Answer
Statement of Cash Flows for PXE Company
Cash Flow from financial activities:
Amount($) Amount($) Net Profit as per P&L Account 20,900 Adjustments for: Non Cash items Depreciation 7000 Non Operating Gains(gain on Sale of Land) (3000)Cash Flow from financial activities:
Interest expense 2800 Interest revenue (300) (Increase)/Decrease in current Assets Inventory 2500 Accounts receivable 2000 Prepaid rent 100 Decrease in Current Liabilities (6500) 4600 Net Cash Flow from Operating activities 25500Related Questions
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