Question

P22-5- Statement of Cash Flows, Indirect Method, Complex Accounts, Disclosures. The Khan Group provided its balance sheet and income statement as of December 31 of the current year.

The Khan Group Balance Sheets At December 31
Assets	Current Year	Prior Year
Current Assets Cash Trading debit Investments Accounts receivable- net Merchandises Inventory       Total Current Assets Noncurrent Assets Investments in Affiliate Companies Property, Plant, and Equipment- net Intangible Assets- net      Total Noncurrent Assets Total Assets     Liabilities Current Liabilities Current Portion of Long-Term Debt Accounts Payable Divided Payable Income Taxes Payable       Total Current Liabilities Noncurrent Liabilities Bonds Payable Less: Discount on Bonds Notes Payable Differed Tax Liability Net Obligations under Pension Plans        Total Noncurrent Liabilities                Total Liabilities         Shareholders’ Equity Common Stock, $1 per value Add’n Paid-in Capital in excess of Par- Common Add’n Paid-in Capital- Stock Options Retained Earnings Accumulated Other Comprehensive Income       Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity	15,000 36,000 65,000 105,000 221,000 161,500 1,533,050 95,200 1,789,750 2,010,750 6,000 87,500 5,000 28,500 127,000 425,000 (87,500) 52,500 3,750 45,000 438,750 565,750 60,000 132,100 2,900 1,175,000 75,000 1,445,000 2,010,750	12,000 30,000 35,000 115,000 192,000 100,500 1,128,580 88,000 1,317,080 1,509,080 4,500 92,500 0 30,000 127,000 425,000 (100,250) 10,000 1,250 22,630 358,630 485,630 502,000 122,100 0 781,850 69,500 1,023,450 1,509,080

The Khan Group Income Statement For the Current Year Ended December 31
Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Unrealized Losses on Trading Portfolio Pension Expense Bad Debit Expense Depreciation Expense Amortization Expense        Total Operating Expenses Operating Income Interest Expense Investment Income (Including gain and sale) Equity Earnings form Affiliate Companies Income before Tax Income Tax Expense Net Income	2,212,040 1,327,224 884,816 43,000 3,600 210,500 1,500 17,700 6,750 283,050 601,766 (50,100) 50,000 118,500 720,166 (288,066) 432,100

Additional Information

The company classifies its current investments as trading securities. During the current year, it sold trading securities that had been acquired for $34,500. Treat the trading securities as an investing activity.

The company reported accounts receivable net of the allowance for bad debts.

The company acquired equipment during the year and made no disposals. Paid cash.

The company did not acquire nor dispose of intangible assets during the year.

The company included a $40,500 gain on the sale of trading investments in investment income on the income statement.

The change in accumulated other comprehensive income is the result of pension adjustments.

There were no additional investments in affiliate companies during the year.

There were no debt issuances during the year.

Required

Prepare the company’s cash flow statement for the current year under the indirect method. Provide all required disclosures.

Answer 1

Cash flow from operating activities
Income before Income Tax				7,20,166
Add:
Unrealized Losses on Trading Portfolio				3,600
Depreciation Expense				17,700
Amortization Expense				6,750
Interest Expense				50,100
Investment Income (Including gain and sale)				-50,000
Equity Earnings form Affiliate Companies				-1,18,500
Pension Expense
Bad Debit Expense				1,500
Change in working capital
(Increase)/decrease in Current Liabilities	Current Year	Prior Year
Accounts Payable	87500	92500	5000
Notes payable	52500	10000	-42500
Divided Payable	5000	0	-5000	-42500
Increase/(decrease) in Current Assets
	Current Year	Prior Year
Accounts receivable- GROSS	66500	35000	31,500
Merchandises Inventory	105000	115000	-10,000	21,500
				610316
Less: Taxes paid				-289566
(Opening+Provision made-closing)
(30000+288066-28500)
Income from operating activities				320750
Income from Investing activities
Property, Plant, and Equipment- net	1533050	1128580	-4,04,470	-4,04,470
(1533050+17700)
Trading debit Investments	36000	30000		-6,000
Sale of Trading investment				84500
(34500+50000)
Equity Earnings form Affiliate Companies				1,18,500
Investments in Affiliate Companies	161500	100500		-61000
Income from Investing activities				-2,68,470
Income from Financing activities
Common Stock, $1 per value	60000	502000
Add’n Paid-in Capital in excess of Par- Common	132100	122100
	192100	624100		-432000
Net Income				432820
Interest Expense				-50100
Income from Financing activities				-49,280
Change in cash and cash equivalent				3,000
Opening cash				12000
Closing cash				15,000