Arctic Company\'s income statement and comparative balance sheets as of December
ID: 2566433 • Letter: A
Question
Arctic Company's income statement and comparative balance sheets as of December 31 of 2013 and 2012 follow:
During 2013, Arctic sold land for $98,000 cash that had originally cost $63,000. Arctic also purchased equipment for cash, acquired treasury stock for cash, and issued bonds payable for cash. Accounts payable relate to merchandise purchases.
Required
a. Calculate the change in cash that occurred during 2013.
b. Prepare a statement of cash flows using the indirect method.
a. Change in Cash during 2013 $Answer
b. Use a negative sign with cash outflow answers.
Income Statement
For the Year Ended December 31, 2013 Sales Revenue $1,019,200 Cost of Goods Sold $747,600 Wages Expense 266,000 Advertising Expense 43,400 Depreciation Expense 30,800 Interest Expense 25,200 Gain on Sale of Land (35,000) 1,078,000 Net Loss $(58,800)
Explanation / Answer
Solution:
a) Change in Cash During 2013 = Cash Balance as at Dec 31, 2013 – Cash balance as at Dec.31, 2012
= $68,600 – 39,200
= $29,400
b) Statement of Cash Flows using the indirect method
Cash Flow Statement (Indirect Method)
Cash Flow from Operating Activities:
$$
$$
Net Loss
-$58,800
Adjustments for:
+
Depreciation Expenses (Non cash item)
$30,800
+
Interest Expenses (Financing Activity)
$25,200
-
Gain on Sale of Land (Investing Activity)
-$35,000
Operating Profit before working capital changes:
-$37,800
Adjustment for:
+
Accounts Receivable (70,000 - 58,800)
$11,200
+
Inventories (158,200 - 149,800)
$8,400
+
Prepaid Advertising (18,200 - 14,000)
$4,200
-
Accounts Payable (43,400 - 23,800)
-$19,600
Cash generation from operations
-$33,600
Net Cash used by Operative Activities
-$33,600
Cash Flow from Investing Activities:
+
Sale of Land
$98,000
-
Purchase of Equipment (Total Plant Asset 504,000 + Land Cost Sold during year 63,000 - Beginning Plant Asset 310,800)
-$256,200
Net Cash used by Investing Activities
-$158,200
Cash Flow from Financing Activities:
-
Purchase of Treasury Stock
-$42,000
+
Issue of Bonds Payable
$280,000
-
Interest Paid (Interest Expense 25,200 - Interest Payable 8400)
-$16,800
Net Cash from Investing Activities
$221,200
Net Increase/(Decrease) in Cash and Cash Equivalents
$29,400
Cash and Cash Equivalents at the beginning of the year
$39,200
Cash and Cash Equivalents at the end of the year
$68,600
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Cash Flow Statement (Indirect Method)
Cash Flow from Operating Activities:
$$
$$
Net Loss
-$58,800
Adjustments for:
+
Depreciation Expenses (Non cash item)
$30,800
+
Interest Expenses (Financing Activity)
$25,200
-
Gain on Sale of Land (Investing Activity)
-$35,000
Operating Profit before working capital changes:
-$37,800
Adjustment for:
+
Accounts Receivable (70,000 - 58,800)
$11,200
+
Inventories (158,200 - 149,800)
$8,400
+
Prepaid Advertising (18,200 - 14,000)
$4,200
-
Accounts Payable (43,400 - 23,800)
-$19,600
Cash generation from operations
-$33,600
Net Cash used by Operative Activities
-$33,600
Cash Flow from Investing Activities:
+
Sale of Land
$98,000
-
Purchase of Equipment (Total Plant Asset 504,000 + Land Cost Sold during year 63,000 - Beginning Plant Asset 310,800)
-$256,200
Net Cash used by Investing Activities
-$158,200
Cash Flow from Financing Activities:
-
Purchase of Treasury Stock
-$42,000
+
Issue of Bonds Payable
$280,000
-
Interest Paid (Interest Expense 25,200 - Interest Payable 8400)
-$16,800
Net Cash from Investing Activities
$221,200
Net Increase/(Decrease) in Cash and Cash Equivalents
$29,400
Cash and Cash Equivalents at the beginning of the year
$39,200
Cash and Cash Equivalents at the end of the year
$68,600
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