Question

Championship Boxing, Inc. is a small manufacturer of cardboard boxes of all sizes. You have reported for your first day of work, and the company is in an uproar. Yearly financial statements are being prepared, but a computer malfunction of the company’s new BOX-9000 computer has inadvertently erased parts of the company’s balance sheet, along with almost all related data except the company’s statement of cash flows. The IT department is working to retrieve earlier backups, but estimates that the reconstruction of the data will take about 24 hours. Unfortunately, financial statements are to be presented at a stockholders’ meeting in one hour. The company uses the indirect method to prepare its statement of cash flows (rather than the direct method), so your new supervisor believes the missing data for the balance sheet can be prepared using the statement of cash flows. You are assigned this task, since you were top student in your business school class. Meanwhile, the supervisor will go to the stockholders’ meeting and give some introductory remarks. In addition to the statement of cash flows, the following data survived the computer mishap: A. The investments were sold for $280,000 cash. B. Equipment was acquired for $152,000 cash. C. Land was acquired for $326,000 cash. D. There were no disposals of equipment during the year. E. 12,500 shares of common stock were sold for cash during the year. F. There was a $96,000 debit to Retained Earnings for cash dividends declared.

Using the information on previous panels, complete the following comparative balance sheet.

Championship Boxing, Inc.

Comparative Balance Sheet

December 31, 20Y8 and 20Y7

1		Dec. 31, 20Y8	Dec. 31, 20Y7
2	Assets
3	Cash		$585,920.00
4	Accounts receivable (net)	230,950.00
5	Inventories		618,420.00
6	Investments	0.00
7	Land		0.00
8	Equipment	705,120.00
9	Accumulated depreciation-equipment	(166,400.00)
10	Total assets
11
12	Liabilities
13	Accounts payable (merchandise creditors)		$391,830.00
14	Accrued expenses payable (operating expenses)	41,160.00
15	Dividends payable		19,200.00
16	Total liabilities	$498,060.00
17
18	Stockholders’ Equity
19	Common stock, $4 par		100,000.00
20	Paid-in capital in excess of par		280,000.00
21	Retained earnings	1,290,930.00
22	Total stockholders’ equity	$1,858,430.00
23	Total liabilities and stockholders’ equity

Your supervisor has provided you with the following statement of cash flows, prepared using the indirect method. Recall that the statement of cash flows consists of three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Review the statement, and then proceed to the next panel.

Championship Boxing, Inc.

Statement of Cash Flows

For the Year Ended December 31, 20Y8

1	Cash flows from operating activities:
2	Net income	$186,540.00
3	Adjustments to reconcile net income to net cash flow from operating activities:
4	Depreciation	18,400.00
5	Gain on sale of investments	(50,000.00)
6	Changes in current operating assets and liabilities:
7	Increase in accounts receivable	(25,370.00)
8	Increase in inventories	(33,350.00)
9	Increase in accounts payable	41,070.00
10	Decrease in accrued expenses payable	(12,460.00)
11	Net cash flow from operating activities		$124,830.00
12	Cash flows from investing activities:
13	Cash received from sale of investments	$280,000.00
14	Cash paid for purchase of land	(326,000.00)
15	Cash paid for purchase of equipment	(152,000.00)
16	Net cash flow used for investing activities		(198,000.00)
17	Cash flows from financing activities:
18	Cash received from sale of common stock	$187,500.00
19	Cash paid for dividends	(91,200.00)
20	Net cash flow from financing activities		96,300.00
21	Change in cash		$23,130.00
22	Cash at the beginning of the year		585,920.00
23	Cash at the end of the year		$609,050.00

Answer 1

Working Notes:-

1. Cash as on Dec.31, 20Y8 = $609050 as per Cash Flow Statement (Cash at the end of the year).

2. Accounts Receivable (net) 20Y7 = 230950 - 25370 = $205580.

3. Inventories 20Y8 = 618420 + 33350 = $651770.

4. Investments 20Y7 = Sale Proceeds - Profit on Sale of Investments

= 280000 - 50000 = $230000.

5. Land 20Y8 =Purchase proceeds for land = $326000.

6. Equipment 20Y7 = Equipment as on Dec.31, 20Y8 - Equipment purchased during 20Y8

= 705120 - 152000 = $553120.

7. Accumulated Depreciation 20Y7 = Accumulated Depreciation as on Dec.31, 20Y8 - Depreciation for the year 20Y8

= 166400 - 18400 = $148000.

8. Accounts Payable 20Y8 = 391830 + 41070 = $432900.

9. Accrued Expenses Payable 20Y7 = 41160 + 12460 = $53620.

10. Dividends Payable 20Y8 = Dividend Payable at beginning of the year - Dividend Paid during 20Y8 + Transfer from Retained Earnings

= 19200 - 91200 + 96000 = $24000.

11. Common Stock, $4 par 20y8 = Common Stock at the beginning of the year + Stock issued during 20Y8 (12500 shares)

= 100000 + (12500*4)

= $150000.

12. Paid in Capital in excess of par 20Y8 = Amount at the beginning of the year + Excess Amount Received on 12500 shares issued during 20Y8

= 280000 + (187500 - 50000)

= $417500.

21. Retained Earnings 20Y7 = Retained Earnings as on Dec.31, 20Y8 - Net Income during 20Y8 + Transfer from Retained Earnings to Dividend Payable

= 1290930 - 186540 + 96000

= $1200390.