Problem 23-5 You have completed the field work in connection with your audit of
ID: 2528971 • Letter: P
Question
Problem 23-5
You have completed the field work in connection with your audit of Waterway Corporation for the year ended December 31, 2017. The balance sheet accounts at the beginning and end of the year are shown below.
Dec. 31,
2017
Dec. 31,
2016
Increase or
(Decrease)
$327,922
$351,640
($23,718
553,920
416,540
137,380
875,206
719,800
155,406
14,160
9,440
4,720
130,390
0
130,390
2,719
2,124
595
244,260
224,200
20,060
631,536
481,322
150,214
61,950
61,950
0
81,420
75,520
5,900
47,200
59,000
(11,800
5,312
0
5,312
$2,975,995
$2,401,536
$574,459
$106,495
$93,928
$12,567
353,150
330,400
22,750
82,600
0
82,600
147,500
0
147,500
0
118,000
(118,000
41,654
47,200
(5,546
500,320
472,000
28,320
204,140
153,400
50,740
0
2,832
(2,832
1,387,916
1,714,776
(326,860
128,620
0
128,620
23,600
(531,000
554,600
$2,975,995
$2,401,536
$574,459
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2017
$(531,000
29,500
501,500
0
106,200
(82,600
$23,600
Your working papers from the audit contain the following information:
From the information given, prepare a statement of cash flows using the indirect method. A worksheet is not necessary, but the principal computations should be supported by schedules or general ledger accounts. The company uses straight-line amortization for bond interest. (Round answers to 0 decimal places, e.g. 2,500. Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
Dec. 31,
2017
Dec. 31,
2016
Increase or
(Decrease)
$327,922
$351,640
($23,718
) Accounts receivable553,920
416,540
137,380
Inventory875,206
719,800
155,406
Prepaid expenses14,160
9,440
4,720
Investment in subsidiary130,390
0
130,390
Cash surrender value of life insurance2,719
2,124
595
Machinery244,260
224,200
20,060
Buildings631,536
481,322
150,214
Land61,950
61,950
0
Patents81,420
75,520
5,900
Copyrights47,200
59,000
(11,800
) Bond discount and issue cost5,312
0
5,312
$2,975,995
$2,401,536
$574,459
Income taxes payable$106,495
$93,928
$12,567
Accounts payable353,150
330,400
22,750
Dividends payable82,600
0
82,600
Bonds payable—8%147,500
0
147,500
Bonds payable—12%0
118,000
(118,000
) Allowance for doubtful accounts41,654
47,200
(5,546
) Accumulated depreciation—buildings500,320
472,000
28,320
Accumulated depreciation—machinery204,140
153,400
50,740
Premium on bonds payable0
2,832
(2,832
) Common stock—no par1,387,916
1,714,776
(326,860
) Paid-in capital in excess of par—common stock128,620
0
128,620
Retained earnings—unappropriated23,600
(531,000
)554,600
$2,975,995
$2,401,536
$574,459
Explanation / Answer
Particulars
Amount
Cash from operating activity
Profit after tax
38538
tax amount
33500.00
Profit before tax
72038.00
Changes in working capital adjustments
Add:
Decrease in acc receivable
11265.00
increase in acc payable
26000.00
increase in salaries payable
60600.00
Increase in doubtful allowance
2000.00
Less:
increase in inventory
-59265.00
Increase in cash surrender value
-1610.00
increase in prepaid expense
-8000.00
increase in investment
-200000.00
Net cash flow from operating activity
-96972.00
Cash from investing activity
Increase in building
-125000.00
increase in equipment
-91000.00
increase in patent
-16000.00
decrease in trade marks
-10000.00
Increase in acc dep
75000.00
Cash flow from investing activity
-167000.00
Cash from financing activity
Increase in funds
increase in bonds
100000.00
Decrease in bond
4910.00
premium
7762.00
common stock
25000.00
paid in capital
150000.00
Cash flow from financing activity
287672.00
Total cash changes
-11265.00
Cash at beginning of year
110700.00
Cash at end of the year
99435.00
Particulars
Amount
Cash from operating activity
Profit after tax
38538
tax amount
33500.00
Profit before tax
72038.00
Changes in working capital adjustments
Add:
Decrease in acc receivable
11265.00
increase in acc payable
26000.00
increase in salaries payable
60600.00
Increase in doubtful allowance
2000.00
Less:
increase in inventory
-59265.00
Increase in cash surrender value
-1610.00
increase in prepaid expense
-8000.00
increase in investment
-200000.00
Net cash flow from operating activity
-96972.00
Cash from investing activity
Increase in building
-125000.00
increase in equipment
-91000.00
increase in patent
-16000.00
decrease in trade marks
-10000.00
Increase in acc dep
75000.00
Cash flow from investing activity
-167000.00
Cash from financing activity
Increase in funds
increase in bonds
100000.00
Decrease in bond
4910.00
premium
7762.00
common stock
25000.00
paid in capital
150000.00
Cash flow from financing activity
287672.00
Total cash changes
-11265.00
Cash at beginning of year
110700.00
Cash at end of the year
99435.00
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