Question

Chapter 13

1. The following financial statement data is available for the Scottsdale Company for Dec. 31, 2019. (30 pts)
   
   Comparative Balance Sheet Data
   
                                                                    2019                  2018
   Cash                                                    $ 39,835         $    4,000
   Accounts Receivable                               17,500             12,950
   Dividends Receivable                               1,000                      0
   Inventory                                                42,000             35,000
   Prepaid rent                                               3,000             12,000
   Prepaid insurance                                      2,100                  900
   Office supplies                                          1,000                  750
   Long-term investments                           20,000             30,000
   Land                                                    125,000         175,000
   Building                                              350,000         350,000
   Accumulated depreciation, Building (105,000)        (87,500)
   Equipment                                           525,000         400,000
   Accumulated depreciation, Equipment (130,000)      (112,000)
   Patent                                                      45,000             50,000
               Total assets                             $ 936,435       $ 871,100
   
   Accounts payable                                $    26,000       $   30,000
   Income taxes payable                                  5,000              4,000
   Wages payable                                            5,000              3,000
   Short-term notes payable                          10,000            10,000
   Dividends payable                                      1,500                   0
   Unearned Income                                           500              2,000
   Accrued Liabilities                                      5,303            10,853
   Long-term notes payable                          60,000            70,000
   Bonds payable                                         415,000          415,000
   Common stock ($10 par)                        290,000          220,000
   Paid-in capital in excess of par                 46,410            17,500
   Retained earnings                                    106,722            88,747
   Treasury Stock                                       (35,000)                     0       
               Total liabilities and equity      $ 936,435       $ 871,100
   
   
   
   
   
   
   
   
   
   Income Statement
   
   Sales revenue                                                                          $1,160,000
   Cost of goods sold                                                                  (    748,000)
   Gross profit                                                                                  412,000
   Operating expenses                                                                 (    276,400)
   Income from operations                                                               135,600
   Other revenues/expense
   Gain on sale of land                                         8,000
   Gain on sale of long-term investment             4,000
   Dividend revenue                                             2,400
   Interest expense                                            (51,750)           (     37,350)
   Income before taxes                                                                      98,250
   Income tax expense                                                                (     39,400)
   Net income                                                                                    58,850
   
   Instructions:

• Prepare a statement of cash flows in proper form for 2019 using the Indirect method. Then, redo the Operating Section only using the Direct method.

Answer 1

Statement of Cash Flows (Indirect method)
Particulars	Amount
Cash Flow from operating activities:
Net Income for 2019		$58,850
Adjustments:
Gain on sale of land	($8,000)
Gain on sale of long term investment	($4,000)
Depreciation	$35,500
Amortization expense	$5,000
Increase in accounts receivable	($4,550)
Increase in Dividend receivable	($1,000)
Increase in Inventories	($7,000)
Decrease in Prepaid rent	$9,000
Increase in Prepaid Insurance	($1,200)
Increase in Office Supplies	($250)
Decrease in Accounts payable	($4,000)
Increase in Income tax payable	$1,000
Increase in Wages payable	$2,000
Increase in Dividend payable	$1,500
Decrease in Unearned Income	($1,500)
Decrease in Accrued Liabilities	($5,550)	$16,950
Cash flow from Operating Activities		$75,800
Cash Flow from Investing Activites:
Proceeds from sale of land	$58,000
Proceeds from sale of long term investment	$14,000
Cash paid for purchase of Equipment	($125,000)
Net Cash flow from Investing activities		($53,000)
Cash Flow from Financing Activities:
Cash paid for long term note payable	($10,000)
Stock repurchased	($35,000)
Cash dividend paid	($40,875)
Common stock issued	$98,910
Net cash flow from Financing activities		$13,035
Net change in cash		$35,835
Beginning cash balance		$4,000
Ending cash balance		$39,835
Working Note:
Depreciation on building = 105000-87500 = 17500
Depreciation on equipment = 130000-112000 = 18000
Amortization on Patent = 50000-45000 = 5000
Sale of land = 175000-125000 = 50000+gain on sale of land 8000 = 58000
Sale on investment = 30000-20000 = 10000+4000 gain = 14000
Purchase of Equipment = 525000-400000 = 125000
Dividend paid = Beginning retained earnings+net income-ending retained earnings
= 88747+58850-106722 = 40875
Common Stock issued = 70000+28910 (APIC) = 98910