The comparative balance sheets for Larkspur Corporation show the following information. December 31 2017 2016 Cash...

The comparative balance sheets for Larkspur Corporation show the following information.

	December 31
	2017	2016
Cash	$33,700	$13,200
Accounts receivable	12,100	9,900
Inventory	12,000	9,100
Available-for-sale debt investments	–0–	3,000
Buildings	–0–	29,500
Equipment	45,000	19,800
Patents	5,000	6,100
	$107,800	$90,600

Allowance for doubtful accounts	$3,100	$4,500
Accumulated depreciation—equipment	2,000	4,500
Accumulated depreciation—building	–0–	6,100
Accounts payable	5,000	3,000
Dividends payable	–0–	4,900
Notes payable, short-term (nontrade)	2,900	4,000
Long-term notes payable	31,000	25,000
Common stock	43,000	33,000
Retained earnings	20,800	5,600
	$107,800	$90,600

Additional data related to 2017 are as follows.

1.		Equipment that had cost $11,100 and was 40% depreciated at time of disposal was sold for $2,500.
2.		$10,000 of the long-term note payable was paid by issuing common stock.
3.		Cash dividends paid were $4,900.
4.		On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,200 (net of $2,100 taxes).
5.		Investments (available-for-sale) were sold at $1,800 above their cost. The company has made similar sales and investments in the past.
6.		Cash was paid for the acquisition of equipment.
7.		A long-term note for $16,000 was issued for the acquisition of equipment.
8.		Interest of $2,000 and income taxes of $6,400 were paid in cash.

Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.

Solutions

Expert Solution

Calculation:

Sale of Equipment:
Book Value of Equipment on the date of Sale = $11,100 – ($11,100 * 40%)
Book Value of Equipment on the date of Sale = $6,660

Gain / (Loss) on sale of Equipment = Sales Proceeds - Book Value of Equipment on the date of Sale
Gain / (Loss) on sale of Equipment = $2,500 - $6,660
Loss on sale of Equipment = -$4,160

Purchase of Equipment:
Equipment – December 31, 2017 = Equipment – December 31, 2016 + Purchase of Equipment – Cost of Equipment sold
$45,000 = $19,800 + Purchase of Equipment - $11,100
Purchase of Equipment = $36,300

Equipment purchased with cash = Purchase of Equipment – Equipment purchased against Common Stock
Equipment purchased with cash = $36,300 - $16,000
Equipment purchased with cash = $20,300

Flood Damage:
Book Value of Building, Net = $29,500 - $6,100
Book Value of Building, Net = $23,400

Gain / (Loss) due to Flood = Insurance proceeds – Book Value of Building, Net
Gain / (Loss) due to Flood = ($30,200 + $2,100) - $23,400
Gain due to Flood = $8,900

Sale of Investment:
Sale Proceeds from Investments = $3,000 + $1,800
Sale Proceeds from Investments = $4,800

Depreciation Expense = Accumulated Depreciation – December 31, 2017 + Depreciation of Equipment sold - Accumulated Depreciation – December 31, 2016
Depreciation Expense = $2,000 + $4,440 - $4,500
Depreciation Expense = $1,940

ekkarill92 answered 1 month ago

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