The controller in your firm has put you in charge of preparing the Statement of
ID: 2529379 • Letter: T
Question
The controller in your firm has put you in charge of preparing the Statement of Cash Flows for the year ended December 31, 2017. You gather the following data. Your firm uses the indirect method.
Your working papers from the audit contain the following information:
On November 1, 2017, 25,000 shares of $1 par stock were sold for $175,000
A patent was purchased for $31,000
During the year, equipment that had a cost basis of $26,400 and on which there was a accumilated depriciation of $5,800 was sold for $15,000. No other plant assets were sold during the year
The 10%, $300,000 40 year bonds were dated and issued on Jan 2, 2004. Interest was payable on June 30, and December 31. They were sold originally at 97. these bonds were retired at 101 plus accured interest on May 31, 2017
The 6%, $400,000 20 year bonds were dated January 1, 2017 and were sold on may 31 at 102 plus accured interest. Interest is payable semiannually on June 30 and Dec 31. Expense of Issuance was $1,200
You aquired 60% control in another company on Jan 2, 2017 for $146,000. The Income statement of that company for 2017 shows a net income of $90,000
Extrodinary repairs to buildings of $12,600 were charged to Accumilated Depriciation- Buildings
Interest paid in 2017 was $31,000 and Income taxes paid were $38,000
Net Income for the year totaled $76,538
Dec 31 2017 Dec 31 2016 Cash 99,435 110,700 AR 424,600 380,900 Inventory 635,740 576,475 Prepaid Expenses 20,000 12,000 Investment in Subsidary 200,000 0 Cash surrender value of Life Insurance 16,460 16,460 14,850 Land 100,000 100,000 Buildings 525,000 400,000 Equipment 381,000 290,000 Patents 86,000 70,000 Trademarks 25,000 35,000 Bond Discount & Issue Costs 1,165 6,075 TOTAL DEBITS 2,514,400 1,996,000 AP 534,000 508,000 Income Tax Payable 68,000 34,500 Salaries & Wages Payable 73,500 12,900 Allowance for doubtful accounts 25,000 23,000 Accumalated Depriciation- Buildings 248,000 230,000 Accumalated Depriciation- Equipment 160,000 103,000 Long Term Notes Payable 75,000 75,000 Bonds Payable 400,000 300,000 Premium on Bonds Payable 7,762 0 Common Stock 150,000 125,000 PD in Cap Excess of Par- Common Stock 568,000 418,000 Retained Earnings 205,138 166,600 TOTAL CREDITS 2,514,400 1,996,000Explanation / Answer
Solution:
Details
Amount
Working
Cash flow from Operating Activities
$153,945
Net income
$76,538
Depreciation on Building (W.N. 4)
$30,600
Working note no 4
Depreciation on Equipment?(WN 6)
$62,800
Working note no 6
Loss on sale of equipment?(WN 6)
$5,600
Working note no 6
Income tax provision for 2017
$71,500
Trademark w/off
$10,000
(35000-25000)
Patent Written off
$15,000
Working note no 2
Net income from Subsidary
-$54,000
Working note no 3
Increase in accounts payable
$26,000
Increase in salary payable
$60,600
Increase in Doubtful allowance
$2,000
Increase in accounts receivable
-$43,700
Increase in Inventory
-$59,265
Increase in Prepaid Expenses
-$8,000
Taxes Paid
-$38,000
Extraordinary Repairs
-$12,600
Working note no 4
Amortization of bond premium
$3,962
Amortization of bonds discount
$4,910
Cash Flow from Investing activities
-$406,010
Patent Purchased
-$31,000
Investment in Subsidary
-$146,000
Building Purchased
-$125,000
Working note no 4
Held To Maturity Securities purchased
-$1,610
Sale oF Equipment
$15,000
Working note no 6
Purchase Of Equipment?
-$117,400
Working note no 6
Cash flow from Financing Activities
$240,800
Issue of stock
$25,000
Working note no 1
Premium on issue of stock
$150,000
Working note no 1
Dividend Paid
-$38,000
Working note no 8
Bonds retired
-$303,000
Bons issued
$406,800
Changes in cash and cash equivalents
-$11,265
Cash flow at the beginning of 2017
$110,700
Cash flow at the end of 2017
$99,435
?
Working notes:
1) Common stock:
Date
Particulars
Amt ($)
Date
Particulars
Amt ($)
31/12/17
To balance c/d
$150,000
01/01/17
By Balance b/d
$125,000
01/11/17
By Cash (25000*1)
$25,000
$150,000
$150,000
Paid in Capital in excess of par common stock
Date
Particulars
Amt ($)
Date
Particulars
Amt ($)
31/12/17
To balance c/d
$568,000
01/01/17
By Balance b/d
$418,000
01/11/17
By Cash (175000-25000*1)
$150,000
$568,000
$568,000
?
?
2) Patent
Date
Particulars
Amt ($)
Date
Particulars
Amt ($)
01/01/17
To Balance b/d
$70,000
31/12/17
By P& L A/c
$15,000
To Cash
$31,000
31/12/17
By Balance c/d
$86,000
$101,000
$101,000
?
3) Investment in Subsidary
01/01/17
To Balance b/d
$0
31/12/17
By Balance c/d
$200,000
02/01/17
To Cash
$146,000
31/12/17
To Dividend - P&L (90000*60%)
$54,000
$200,000
$200,000
?
4) Building
01/01/2017
To Balance b/d
$400,000
31/12/17
By Balance c/d
$525,000
To Cash A/C (Bf)
$125,000
$525,000
$525,000
Accumulated depreciation
To Extraordinary repairs-Cash
$12,600
01/01/2017
By Balance b/d
$230,000
31/12/17
To Balance c/d
$248,000
By P&L A/C -Provision (B F)
$30,600
$260,600
$260,600
5) Income Tax Payable
31/12/17
To Cash A/C?
$38,000
01/01/2017
By Balance b/d
$34,500
31/12/17
To Balance c/d
$68,000
31/12/17
By P&L A/C -Provision (B F)
$71,500
$106,000
$106,000
?
6) Equipment
01/01/2017
To Balance b/d
$290,000
31/12/17
By Cash A/C
$15,000
31/12/17
To Cash A/C (Bf)
$117,400
31/12/17
By Accum Dep A/C
$5,800
31/12/17
By P& L-Loss on sale
$5,600
31/12/17
By Balance c/d
$381,000
$407,400
$407,400
?
Accumlated Depreciation-Equipment
31/12/17
To Equipment A/c
$5,800
01/01/2017
By Balance b/d
$103,000
31/12/17
To Balance c/d
$160,000
31/12/17
By P&L A/C -Provision (B F)
$62,800
$165,800
$165,800
?
?
7) Bond Payable
01/01/2017
By Balance b/d
$300,000
31/12/2017
To Balance c/d
$400,000
?
Premium On Bond Payable
01/01/2017
By Balance b/d
$0
31/12/2017
To Balance c/d
$7,762
?
Bond Discount & Issue Cost
01/01/2017
To Balance b/d
$6,075
31/12/2017
By Balance c/d
$1,165
?
8) Retained Earnings
31/12/2017
To Dividend-Cash (B.F.)
$38,000
01/01/2017
By Balance b/d
$166,600
31/12/2017
To Balance c/d
$205,138
31/12/2017
By P& L A/C
$76,538
$243,138
$243,138
?
?
?
?
?
Details
Amount
Working
Cash flow from Operating Activities
$153,945
Net income
$76,538
Depreciation on Building (W.N. 4)
$30,600
Working note no 4
Depreciation on Equipment?(WN 6)
$62,800
Working note no 6
Loss on sale of equipment?(WN 6)
$5,600
Working note no 6
Income tax provision for 2017
$71,500
Trademark w/off
$10,000
(35000-25000)
Patent Written off
$15,000
Working note no 2
Net income from Subsidary
-$54,000
Working note no 3
Increase in accounts payable
$26,000
Increase in salary payable
$60,600
Increase in Doubtful allowance
$2,000
Increase in accounts receivable
-$43,700
Increase in Inventory
-$59,265
Increase in Prepaid Expenses
-$8,000
Taxes Paid
-$38,000
Extraordinary Repairs
-$12,600
Working note no 4
Amortization of bond premium
$3,962
Amortization of bonds discount
$4,910
Cash Flow from Investing activities
-$406,010
Patent Purchased
-$31,000
Investment in Subsidary
-$146,000
Building Purchased
-$125,000
Working note no 4
Held To Maturity Securities purchased
-$1,610
Sale oF Equipment
$15,000
Working note no 6
Purchase Of Equipment?
-$117,400
Working note no 6
Cash flow from Financing Activities
$240,800
Issue of stock
$25,000
Working note no 1
Premium on issue of stock
$150,000
Working note no 1
Dividend Paid
-$38,000
Working note no 8
Bonds retired
-$303,000
Bons issued
$406,800
Changes in cash and cash equivalents
-$11,265
Cash flow at the beginning of 2017
$110,700
Cash flow at the end of 2017
$99,435
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