Additional information related to 2014: a. Equipment that cost $10,500 and was 5

Question

Additional information related to 2014:

a. Equipment that cost $10,500 and was 50% depreciated at the time of disposal was sold for $2,600

b. $10,000 of common shares was issued on June 1, 2014. On September 30th, the proceeds from the common shares were used to pay $10,000 of the long-term note payable

c. Cash dividends in the amount of $6,000 were paid. Shubenacadie has adopted the policy of classifying dividends paid as operating activities

d. A flood destroyed the building on January 1, 2014. Insurance proceeds were $23,000

e. FV-NI investments were sold at $3,300 above their cost. The fair value of the investments at December 31, 2013 equalled their original cost.

f. A new piece of equipment was acquired at a cost of $17,000 (all cash)

g. Shubenacadie issued a long-term note in the amount of $15,500 to acquire new equipment

h. Cash payments included $2,200 for interest and $5,600 for income taxes. Shubenacadie classifies interest paid as a financing activity.

Required: 1. Prepare a Statement of Cash Flows using the indirect method (Hint: you will need to calculate some balances required for the Statement using the financial information provided)

Account 2014 2013 $38,700 11,600 10,600 Cash Accounts Receivable Invento FV-NI investments Buildings Equipment Patent Total Debits S13,000 9,750 9,100 2,500 27,700 18,500 14,000 $94.550 40,500 14,000 5.400 Allowance for Doubtful Accounts Accumulated depreciation $1,400 $1,500 3,300 5,700 7,750 3.300 6,000 4,000 25,000 33,000 5,000 S94.550 Equipment 2,000 Buildings Accumulated Amortization- Patent Accounts Payable Dividends Payable Notes Pavable (short term Notes Payable (long term) Share Capital Retained Earnings Total Credits 9,000 4,400 0 3,400 30,500 43,000 21,700 5.40

Explanation / Answer

Solution:

Preparing a Statement of Cash Flows using the Indirect Method:

Statement of Cash Flows (Indirect Method)

Dec 31,2014

Computations:

1) Net Income = R/E 2014 - R/E 2013

Net Income = 21,700 - 5000 = 16,700

2) Equipment sold:

Step1: Find BV= 10,500

Step 2 : Acc. Dep= (5,250)

Step 3: Net Book Value= 5,250

Step 4: Proceeds from sale= (2,600)

Step 5: Loss on Equipment Sale= 2,650

Statement of Cash Flows (Indirect Method)

Dec 31,2014

Cash Flow from Operatons Net Income $16,700 Adj: 1 Non Operating Exp/Rev: Loss on Sale of Equipment $2,650 Gain on Building ($1,000) Gain on FV-NI ($3,300) Interest Paid $2,200 $550 Adj 2: Non Cash Depreciaton exp. On equipment $3,950 Patent Amortization $1,250 $5,200 Changes in Working Capital Increase in Net A/R ($1,950) Increase in Inventory ($1,500) Increase in A/P $1,100 ($2,350) Miscellaneous Dividends paid ($6,000) Cash from Investng actvites: Proceeds from sale of Equipment $2,600 Proceed FV-NI Investment $5,800 Proceeds from Insurance $23,000 Purchase from sale of Equipment ($17,000) Net Flow Cash from Operatons $14,400 Cash from Financing actvites: Interest Paid ($2,200) Short Term notes ($600) Net Cash Flows From Financing ($2,800) Net Cash Flows $25,700 Cash Jan1, 2014 $13,000 Cash Dec 31, 2014 $38,700

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