Condensed financial information for Entity A is presented below. Entity A Compar
ID: 2586080 • Letter: C
Question
Condensed financial information for Entity A is presented below.
Entity A
Comparative Balance Sheets
December 31, 2018
Assets
2018
2017
Cash
37,000
33,000
Accounts receivable
57,000
41,000
Inventory
45,000
48,000
Prepaid expenses
17,000
14,000
Long-term investments
162,000
130,000
Plant assets
580,000
520,000
Accumulated depreciation
-211,000
-180,000
Total
687,000
606,000
Liabilities and Stockholders' Equity
Accounts payable
44,000
51,000
Accrued expenses payable
21,000
15,000
Bonds payable
180,000
220,000
Common stock
175,000
150,000
Retained earnings
267,000
170,000
Total
687,000
606,000
Entity A
Income Statement
For the year ending December 31, 2018
Sales revenue
610,000
Less:
Cost of goods sold
290,000
Operating expenses
65,000
Depreciation expense
50,000
Income tax expense
47,000
Interest expense
12,000
Loss on disposal of plant assets
9,000
473,000
Net income
137,000
In addition:
1. Accounts payable pertain to merchandise creditors.
2. A cash dividend of $40,000 was declared and paid during the year.
3. Old plant assets with an original cost of $30,000 were sold for $2,000 cash.
4. Some of the bonds payable matured and were redeemed at face.
5. New plant assets costing $90,000 cash were purchased during the year.
1. Prepare a statement of cash flows using the direct method.
2. Prepare a reconciliation statement.
Condensed financial information for Entity A is presented below.
Entity A
Comparative Balance Sheets
December 31, 2018
Assets
2018
2017
Cash
37,000
33,000
Accounts receivable
57,000
41,000
Inventory
45,000
48,000
Prepaid expenses
17,000
14,000
Long-term investments
162,000
130,000
Plant assets
580,000
520,000
Accumulated depreciation
-211,000
-180,000
Total
687,000
606,000
Liabilities and Stockholders' Equity
Accounts payable
44,000
51,000
Accrued expenses payable
21,000
15,000
Bonds payable
180,000
220,000
Common stock
175,000
150,000
Retained earnings
267,000
170,000
Total
687,000
606,000
Entity A
Income Statement
For the year ending December 31, 2018
Sales revenue
610,000
Less:
Cost of goods sold
290,000
Operating expenses
65,000
Depreciation expense
50,000
Income tax expense
47,000
Interest expense
12,000
Loss on disposal of plant assets
9,000
473,000
Net income
137,000
In addition:
1. Accounts payable pertain to merchandise creditors.
2. A cash dividend of $40,000 was declared and paid during the year.
3. Old plant assets with an original cost of $30,000 were sold for $2,000 cash.
4. Some of the bonds payable matured and were redeemed at face.
5. New plant assets costing $90,000 cash were purchased during the year.
1. Prepare a statement of cash flows using the direct method.
2. Prepare a reconciliation statement.
Explanation / Answer
Step 1 - Statement of cash flow (Direct Method)
Entity A
Statement of cash flow
For the year ending December 31, 2018
Issue of share capital
($175000 - $150000)
Net Increase/Decrease in cash flow (A+B+C)
[$179000+(-$120000)+(-$55000)
Opening Cash and Cash Equivalents
Closing Cash and cash equivalents ($33000 + $4000)
$33000
$37000
Step 2 - Reconciliation statement
Adjust : Items not effecting cash
Add : Increase in Accrues expenses payable
Less : Increase in prepaid expenses
$6000
$3000
Note 1 - Cash Received from cutomers
Note 2 - Cash Paid to supplier
Note 3 - Cash Paid for operating expenses
Particulars Cash Flow from Operating activities Cash received from customers (Note 1) $594000 Cash payment to suppliers (Note 2) -$294000 Operating expenses paid (Note 3) -$62000 Interest Paid -$12000 Taxes Paid -$47000 Cash Flow from Operating activities (A) $179000 Cash flow from Investing activities Purchase of plant -$9000 Sale of plant $2000 Purchase of Long term Investements ($162000 - $130000) -$32000 Cash Used in investing activities (B) -$120000 Cash Flow from Financing activitiesIssue of share capital
($175000 - $150000)
$25000 Dividend Paid -$40000 Bonds Redeemed ($220000 - $180000) -$40000 Cash Used in financing activities (C) -$55000Net Increase/Decrease in cash flow (A+B+C)
[$179000+(-$120000)+(-$55000)
$4000Opening Cash and Cash Equivalents
Closing Cash and cash equivalents ($33000 + $4000)
$33000
$37000
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