Problem 23-4 Vaughn Company had the following information available at the end o

Question

Problem 23-4 Vaughn Company had the following information available at the end of 2017. VAUGHNCOMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016 2017 2016 Cash $10,090 $3,960 Accounts receivable 20,420 12,880 Short-term investments 21,900 30,120 Inventory 41,880 35,100 Prepaid rent 3,010 12,090 Prepaid insurance 2,080 90 Supplies 1,010 75 Land 123,790 175,990 Buildings 352,890 352,890 Accumulated depreciation—buildings (105,450 ) (87,170 ) Equipment 523,690 398,650 Accumulated depreciation—equipment (130,800 ) (112,550 ) Patents 44,830 49,530 Total assets $909,340 $871,655 Accounts payable $21,890 $32,080 Income taxes payable 5,020 3,990 Salaries and wages payable 5,000 3,030 Short-term notes payable 10,100 10,100 Long-term notes payable 60,090 70,350 Bonds payable 402,480 402,480 Premium on bonds payable 13,780 23,185 Common stock 241,670 219,820 Paid-in capital in excess of par—common stock 25,220 17,450 Retained earnings 124,090 89,170 Total liabilities and stockholders’ equity $909,340 $871,655 VAUGHN COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017 Sales revenue $1,169,440 Cost of goods sold 745,640 423,800 Gross margin Operating expenses Selling expenses $79,900 Administrative expenses 157,280 Depreciation/Amortization expense 41,230 Total operating expenses 278,410 Income from operations 145,390 Other revenues/expenses Gain on sale of land 7,990 Gain on sale of short-term investment 4,000 Dividend revenue 2,400 Interest expense (52,070 ) (37,680 ) Income before taxes 107,710 Income tax expense 39,690 Net income 68,020 Dividends to common stockholders (33,100 ) To retained earnings $34,920

Prepare a statement of cash flows for Vaughn Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Explanation / Answer

Vaughn Company Cash flow for operating activities under direct method Reconciliation of Net Income to net cash flow from operating activites Cash receipts from customers Opening Accounts receivable 12880 Net Income 68020 Add : Sales 1169440 Add : Income tax expense 39690 Less : Closing accounts receivable 20420 1161900 Add : Depreciation 41230 Less : gain on sale of land -7990 Payment made to suppliers Less : Gain on sale of investment -4000 Ending Inventory 41880 Less; Dividend revenue -2400 Add : cost of goods sold 745640 Add : interest Expense 52070 Less : Beginning Inventory 35100 Net operating cash flow before working capital changes 186620 Inventory purchased 752420 Less : Increase in accounts receivable -7540 Add : Beginning Accounts payable 32080 Less ; Increase in inventory -6780 Less : Ending Accounts Payable 21890 -762610 Add : Decrease in prepaid rent 9080 Less : increase in prepaid insurance -1990 Selling expenses -79900 Less : increase in supplies -935 Administrative expenses 157280 Less : Decrease in accounts payable -10190 Less : Beginning prepaid rent 12090 Add : increase in salary & wages Payable 1970 Less : Beginning prepaid insurance 90 Total 170235 Add : Ending prepaid rent 3010 Less ; Taxes paid -38660 Add : Ending prepaid insurance 2080 Net cash flow from operating activities 131575 Less : Beginning supplies 75 Add : Ending supplies 1010 Add : Beginning salary & wages payable 3030 Less : Ending salary & wages payable 5000 -149155 Income taxes paid -38660 Cash flows from operating activities 131575 Cash flow from Financing activities Notes payable repaid -10260 Interest paid in cash/premium on bonds -61475 Payment of Dividends -33100 Receipt from issaunce of stock 29620 Cash flow from Financing activities -75215 Cash flow from Investing activities Payment for purchase of plant asset -125040 Proceeds from sale of short term investment 12220 Dividend Revenue 2400 Proceeds from sale of land 60190 Cash flow from Investing activities -50230 Net Cash flows 6130 Add : beginning cash balance 3960 Ending cash balance 10090

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