Problem 23-4 FLOUNDER COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017

ID: 2535750 • Letter: P

Question

Problem 23-4

FLOUNDERCOMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016

2017

2016

$9,950

$4,040

20,400

12,940

21,900

29,820

41,810

34,990

3,030

11,920

2,080

1,000

124,130

176,650

352,080

(104,780

(87,460

528,790

398,480

(129,230

(112,850

45,190

50,410

$916,350

$871,185

$21,970

$32,260

4,960

3,960

4,970

2,970

10,070

59,750

69,640

397,090

28,020

31,605

241,550

221,910

24,900

17,360

123,070

84,320

$916,350

$871,185

FLOUNDER COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2017

$1,161,520

754,390

407,130

$78,500

155,730

38,920

273,150

133,980

7,930

4,020

2,400

(51,420

(37,070

96,910

39,610

57,300

(18,550

$38,750

Reconciliation Schedule

Problem 23-4

Flounder Company had the following information available at the end of 2017.

FLOUNDERCOMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016

2017

2016

Cash

$9,950

$4,040

Accounts receivable

20,400

12,940

Short-term investments

21,900

29,820

Inventory

41,810

34,990

Prepaid rent

3,030

11,920

Prepaid insurance

2,080

Supplies

1,000

Land

124,130

176,650

Buildings

352,080

Accumulated depreciation—buildings

(104,780

)

(87,460

) Equipment

528,790

398,480

Accumulated depreciation—equipment

(129,230

)

(112,850

) Patents

45,190

50,410

Total assets

$916,350

$871,185

Accounts payable

$21,970

$32,260

Income taxes payable

4,960

3,960

Salaries and wages payable

4,970

2,970

Short-term notes payable

10,070

Long-term notes payable

59,750

69,640

Bonds payable

397,090

Premium on bonds payable

28,020

31,605

Common stock

241,550

221,910

Paid-in capital in excess of par—common stock

24,900

17,360

Retained earnings

123,070

84,320

Total liabilities and stockholders’ equity

$916,350

$871,185

FLOUNDER COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue

$1,161,520

Cost of goods sold

754,390

407,130

Gross margin Operating expenses Selling expenses

$78,500

Administrative expenses

155,730

Depreciation/Amortization expense

38,920

Total operating expenses

273,150

Income from operations

133,980

Other revenues/expenses Gain on sale of land

7,930

Gain on sale of short-term investment

4,020

Dividend revenue

2,400

Interest expense

(51,420

)

(37,070

) Income before taxes

96,910

Income tax expense

39,610

Net income

57,300

Dividends to common stockholders

(18,550

) To retained earnings

$38,750

Prepare a statement of cash flows for Flounder 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).)
FLOUNDER COMPANY
Statement of Cash Flows

December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017

(Direct Method)

Cash, January 1, 2017Cash, December 31, 2017Cash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in Cash

Cash receipts:

Purchase of Short-Term Investments Dividends Paid Cash Received from Customers Purchase of Land Proceeds from Issuance of Common Stock Purchase of Equipment Cash Paid for Operating Expenses Principal Payment on Long-term Debt Dividends Received Cash Paid for Interest Cash Paid to Suppliers Cash Paid for Taxes Sale of Short-term Investments Sale of Land

Dividends Received Purchase of Equipment Cash Paid for Operating Expenses Sale of Land Cash Received from Customers Sale of Short-term Investments Proceeds from Issuance of Common Stock Principal Payment on Long-term Debt Dividends Paid Purchase of Land Cash Paid to Suppliers Purchase of Short-Term Investments Cash Paid for Taxes Cash Paid for Interest

Cash payments:

Cash Paid for Taxes Purchase of Equipment Cash Received from Customers Dividends Received Principal Payment on Long-term Debt Sale of Short-term Investments Sale of Land Dividends Paid Proceeds from Issuance of Common Stock Cash Paid to Suppliers Purchase of Land Cash Paid for Operating Expenses Cash Paid for Interest Purchase of Short-Term Investments

Proceeds from Issuance of Common Stock Purchase of Short-Term Investments Principal Payment on Long-term Debt Purchase of Equipment Cash Paid for Interest Dividends Paid Purchase of Land Cash Paid for Operating Expenses Dividends Received Cash Received from Customers Sale of Short-term Investments Cash Paid to Suppliers Cash Paid for Taxes Sale of Land

Purchase of Land Principal Payment on Long-term Debt Purchase of Equipment Cash Paid for Interest Cash Paid to Suppliers Sale of Land Purchase of Short-Term Investments Dividends Paid Cash Received from Customers Dividends Received Cash Paid for Operating Expenses Sale of Short-term Investments Proceeds from Issuance of Common Stock Cash Paid for Taxes

Dividends Received Cash Paid for Interest Sale of Land Cash Received from Customers Proceeds from Issuance of Common Stock Purchase of Equipment Cash Paid for Taxes Purchase of Land Sale of Short-term Investments Purchase of Short-Term Investments Cash Paid to Suppliers Principal Payment on Long-term Debt Dividends Paid Cash Paid for Operating Expenses

Purchase of Short-Term Investments Cash Paid to Suppliers Dividends Paid Cash Received from Customers Cash Paid for Operating Expenses Principal Payment on Long-term Debt Purchase of Equipment Cash Paid for Taxes Cash Paid for Interest Dividends Received Purchase of Land Sale of Short-term Investments Proceeds from Issuance of Common Stock Sale of Land

Principal Payment on Long-term Debt Cash Paid to Suppliers Dividends Received Dividends Paid Cash Paid for Operating Expenses Purchase of Land Cash Paid for Taxes Purchase of Short-Term Investments Proceeds from Issuance of Common Stock Cash Paid for Interest Cash Received from Customers Sale of Short-term Investments Sale of Land Purchase of Equipment

Principal Payment on Long-term Debt Dividends Paid Cash Paid for Interest Cash Paid for Operating Expenses Sale of Land Dividends Received Purchase of Land Cash Paid to Suppliers Cash Paid for Taxes Purchase of Short-Term Investments Proceeds from Issuance of Common Stock Sale of Short-term Investments Cash Received from Customers Purchase of Equipment

Cash, January 1, 2017 Cash, December 31, 2017 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash

Dividends Paid Sale of Land Purchase of Land Principal Payment on Long-term Debt Sale of Short-term Investments Purchase of Equipment Cash Paid to Suppliers Cash Paid for Taxes Cash Paid for Interest Dividends Received Proceeds from Issuance of Common Stock Purchase of Short-Term Investments Cash Received from Customers Cash Paid for Operating Expenses

Sale of Short-term Investments Proceeds from Issuance of Common Stock Cash Paid to Suppliers Cash Received from Customers Cash Paid for Operating Expenses Cash Paid for Taxes Dividends Paid Purchase of Land Purchase of Short-Term Investments Purchase of Equipment Principal Payment on Long-term Debt Dividends Received Cash Paid for Interest Sale of Land

Proceeds from Issuance of Common Stock Cash Received from Customers Cash Paid to Suppliers Principal Payment on Long-term Debt Purchase of Short-Term Investments Dividends Received Cash Paid for Operating Expenses Cash Paid for Taxes Purchase of Land Dividends Paid Cash Paid for Interest Sale of Short-term Investments Sale of Land Purchase of Equipment

Cash, January 1, 2017 Cash, December 31, 2017 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash

(Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Reconciliation Schedule

Reconciliation of Net Income to

Increase in Income Taxes Payable Decrease in Accounts Receivable Decrease in Supplies Increase in Salaries and Wages Payable Net Income Gain on Sale of Land Gain on Sale of Short-term Investments Decrease in Prepaid Rent Loss on Sale of Short-Term Investments Decrease in Income Taxes Payable Decrease in Salaries and Wages Payable Amortization of Bond Premium Increase in Prepaid Rent Increase in Prepaid Insurance Increase in Supplies Increase in Accounts Receivable Depreciation/Amortization Expense Increase in Accounts Payable Decrease in Prepaid Insurance Decrease in Accounts Payable Loss on Sale of Land Increase in Inventory Decrease in Inventory

Adjustments to reconcile net income to

Decrease in Supplies Gain on Sale of Land Decrease in Salaries and Wages Payable Loss on Sale of Land Net Income Increase in Supplies Increase in Accounts Receivable Depreciation/Amortization Expense Gain on Sale of Short-term Investments Decrease in Accounts Receivable Increase in Inventory Decrease in Inventory Decrease in Accounts Payable Increase in Accounts Payable Loss on Sale of Short-Term Investments Decrease in Prepaid Rent Amortization of Bond Premium Increase in Prepaid Rent Increase in Income Taxes Payable Decrease in Income Taxes Payable Increase in Salaries and Wages Payable Increase in Prepaid Insurance Decrease in Prepaid Insurance

Gain on Sale of Short-term Investments Decrease in Prepaid Rent Decrease in Salaries and Wages Payable Decrease in Accounts Payable Increase in Prepaid Rent Increase in Salaries and Wages Payable Increase in Inventory Decrease in Inventory Loss on Sale of Short-Term Investments Gain on Sale of Land Increase in Income Taxes Payable Decrease in Income Taxes Payable Decrease in Prepaid Insurance Increase in Accounts Receivable Amortization of Bond Premium Increase in Prepaid Insurance Increase in Supplies Decrease in Supplies Increase in Accounts Payable Loss on Sale of Land Net Income Depreciation/Amortization Expense Decrease in Accounts Receivable

Increase in Inventory Amortization of Bond Premium Increase in Supplies Gain on Sale of Short-term Investments Decrease in Prepaid Insurance Decrease in Salaries and Wages Payable Loss on Sale of Short-Term Investments Decrease in Inventory Net Income Increase in Prepaid Insurance Decrease in Income Taxes Payable Decrease in Supplies Increase in Salaries and Wages Payable Decrease in Prepaid Rent Increase in Prepaid Rent Gain on Sale of Land Loss on Sale of Land Increase in Income Taxes Payable Depreciation/Amortization Expense Increase in Accounts Payable Decrease in Accounts Payable Increase in Accounts Receivable Decrease in Accounts Receivable

Increase in Prepaid Rent Increase in Income Taxes Payable Decrease in Income Taxes Payable Increase in Salaries and Wages Payable Decrease in Salaries and Wages Payable Decrease in Prepaid Rent Increase in Prepaid Insurance Depreciation/Amortization Expense Increase in Accounts Receivable Decrease in Accounts Payable Decrease in Prepaid Insurance Loss on Sale of Short-Term Investments Decrease in Accounts Receivable Increase in Supplies Decrease in Supplies Gain on Sale of Land Loss on Sale of Land Increase in Accounts Payable Increase in Inventory Decrease in Inventory Gain on Sale of Short-term Investments Amortization of Bond Premium Net Income

Decrease in Supplies Depreciation/Amortization Expense Decrease in Prepaid Insurance Amortization of Bond Premium Gain on Sale of Land Increase in Salaries and Wages Payable Loss on Sale of Short-Term Investments Increase in Accounts Payable Net Income Decrease in Accounts Payable Increase in Accounts Receivable Loss on Sale of Land Gain on Sale of Short-term Investments Decrease in Prepaid Rent Decrease in Inventory Decrease in Income Taxes Payable Decrease in Accounts Receivable Decrease in Salaries and Wages Payable Increase in Inventory Increase in Prepaid Insurance Increase in Supplies Increase in Prepaid Rent Increase in Income Taxes Payable

Increase in Prepaid Rent Decrease in Accounts Payable Loss on Sale of Land Increase in Accounts Receivable Increase in Accounts Payable Decrease in Accounts Receivable Decrease in Salaries and Wages Payable Decrease in Prepaid Insurance Gain on Sale of Short-term Investments Increase in Inventory Decrease in Inventory Decrease in Prepaid Rent Increase in Income Taxes Payable Increase in Salaries and Wages Payable Increase in Prepaid Insurance Gain on Sale of Land Depreciation/Amortization Expense Decrease in Income Taxes Payable Loss on Sale of Short-Term Investments Amortization of Bond Premium Increase in Supplies Decrease in Supplies Net Income

Increase in Accounts Payable Decrease in Accounts Payable Increase in Supplies Loss on Sale of Land Decrease in Supplies Increase in Salaries and Wages Payable Decrease in Income Taxes Payable Decrease in Accounts Receivable Decrease in Salaries and Wages Payable Gain on Sale of Short-term Investments Loss on Sale of Short-Term Investments Amortization of Bond Premium Decrease in Inventory Net Income Increase in Prepaid Insurance Gain on Sale of Land Depreciation/Amortization Expense Increase in Accounts Receivable Decrease in Prepaid Insurance Increase in Inventory Decrease in Prepaid Rent Increase in Prepaid Rent Increase in Income Taxes Payable

Decrease in Salaries and Wages Payable Increase in Supplies Increase in Inventory Depreciation/Amortization Expense Increase in Income Taxes Payable Decrease in Accounts Payable Loss on Sale of Land Increase in Accounts Receivable Decrease in Inventory Increase in Prepaid Insurance Decrease in Prepaid Rent Decrease in Supplies Decrease in Income Taxes Payable Increase in Prepaid Rent Decrease in Accounts Receivable Gain on Sale of Land Increase in Salaries and Wages Payable Decrease in Prepaid Insurance Gain on Sale of Short-term Investments Net Income Loss on Sale of Short-Term Investments Amortization of Bond Premium Increase in Accounts Payable

Decrease in Prepaid Insurance Increase in Prepaid Insurance Decrease in Accounts Receivable Gain on Sale of Short-term Investments Increase in Income Taxes Payable Increase in Inventory Increase in Supplies Decrease in Income Taxes Payable Decrease in Supplies Net Income Increase in Accounts Receivable Depreciation/Amortization Expense Gain on Sale of Land Decrease in Salaries and Wages Payable Increase in Accounts Payable Amortization of Bond Premium Decrease in Inventory Increase in Salaries and Wages Payable Loss on Sale of Land Decrease in Prepaid Rent Loss on Sale of Short-Term Investments Decrease in Accounts Payable Increase in Prepaid Rent

Increase in Inventory Decrease in Prepaid Insurance Increase in Prepaid Rent Decrease in Prepaid Rent Increase in Income Taxes Payable Decrease in Income Taxes Payable Depreciation/Amortization Expense Decrease in Inventory Decrease in Accounts Receivable Decrease in Salaries and Wages Payable Increase in Supplies Increase in Salaries and Wages Payable Increase in Prepaid Insurance Decrease in Supplies Gain on Sale of Land Loss on Sale of Land Gain on Sale of Short-term Investments Increase in Accounts Payable Loss on Sale of Short-Term Investments Amortization of Bond Premium Decrease in Accounts Payable Net Income Increase in Accounts Receivable

Loss on Sale of Land Decrease in Salaries and Wages Payable Increase in Prepaid Rent Loss on Sale of Short-Term Investments Gain on Sale of Short-term Investments Decrease in Supplies Increase in Salaries and Wages Payable Amortization of Bond Premium Decrease in Prepaid Insurance Decrease in Accounts Receivable Net Income Increase in Prepaid Insurance Depreciation/Amortization Expense Gain on Sale of Land Increase in Accounts Payable Decrease in Inventory Decrease in Prepaid Rent Decrease in Income Taxes Payable Decrease in Accounts Payable Increase in Accounts Receivable Increase in Inventory Increase in Income Taxes Payable Increase in Supplies

Loss on Sale of Land Amortization of Bond Premium Gain on Sale of Land Increase in Supplies Increase in Prepaid Insurance Decrease in Supplies Decrease in Inventory Gain on Sale of Short-term Investments Loss on Sale of Short-Term Investments Net Income Decrease in Income Taxes Payable Increase in Prepaid Rent Depreciation/Amortization Expense Increase in Income Taxes Payable Increase in Accounts Payable Decrease in Accounts Receivable Increase in Accounts Receivable Decrease in Prepaid Insurance Decrease in Prepaid Rent Decrease in Accounts Payable Increase in Salaries and Wages Payable Increase in Inventory Decrease in Salaries and Wages Payable

Cash, January 1, 2017 Cash, December 31, 2017 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash Total Adjustments

Explanation / Answer

FLOUNDER INC. Statement of cash flows (direct method) For the year ended December31, 2017 Cash flow from operations Cash collections from sales (1) 1154060 Cash payment for cost of goods (2) -772425 Selling and and admn.expenses paid (3) -225330 Cash flow from operations 156305 Cash flow from investing activities Sale of land (4) 60450 Sale of short-term investments (50 11940 Dividend Revenue 2400 Purchase of equipment (6) -130310 Net cash flow from (used in) investing activities -55520 Cash flow from financing activities Repayment of long term note payable (7) -9890 issue of common shares (8) 27180 Dividend paid -18550 Interest paid (9) -55005 Cash flow from (used in )financing activities -56265 income tax paid (10) -38610 Net Cash flow 5910 Beginning Cash balance 4040 Ending cash balance 9950 1. Collections from sales Beginning Balance of receivables 12940 Add: Sales during the year 1161520 Total 1174460 Less: Ending Balance of receivables 20400 Cash collection from sale 1154060 2. Payment for Cost of goods sold Cost of goods sold 754390 Add: Ending inventory 41810 Ending supplies 1000 797200 Less: beginning inventory 34990 Beginning supplies 75 Purchases during the year 762135 Add: beginning accounts payable 32260 Total 794395 Less: ending accounts payable 21970 Cash paid for cost of goods sold 772425 3. Selling and administrative expenses Selling expenses 78500 Administrative expenses 155730 Total expenses 234230 Add: Ending balance of prepaid rent 3030 Ending balance of prepaid insurance 2080 Beginning salaries and wages payable 2970 242310 Less: Beginning Prepaid rent 11920 Beginning prepaidinsurance 90 Ending salaries and wages payable 4970 Cash payment for selling and admn.expenses 225330 4. Cash received on sale of land Beginning balance of land 176650 Ending balance of land 124130 Value of land sold 52520 Add: gain on sale of land 7930 Cash received from sale of land 60450 5. Cash received on sale of short-terminvestments Beginning balance of short-term investments 29820 Ending balance of short-term investments 21900 Value of investments sold 7920 Gain on sale of investments 4020 Cash received from sale of investments 11940 6. Purchase of equipment Ending balance of equipment 528790 Beginning balance of equipment 398480 Value of equipments purchased 130310 7. Repayment of long-term note payable Beginning balance of long-term note payable 69640 Ending balance of long-term note payable 59750 Repayment of long term notes 9890 8. Issue of common stock Ending balance of common stock 241550 Add: Ending balance of paid-in-capital in excess 24900 Total ending balance 266450 Less: Beginning balance of common stock 221910 Beginning balance of paid in capital in excess 17360 239270 Cash received on issue of common stock 27180 9. Interest paid Interest expense 51420 Add: Beginning premium on bond payable 31605 83025 Less: Ending premium on bond payable 28020 Cash payment for interest 55005 10.Income taxes paid Beginning balance of income tax payable 3960 Add: Income tax expense for the year 39610 43570 Les: Ending balance of income tax payable 4960 Cash paid for income taxes 38610

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Problem 23-4 FLOUNDER COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017

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