Question

Problem 23-2

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

		December 31
		2017		2016
Cash		$33,200		$13,000
Accounts receivable		12,200		10,100
Inventory		12,100		8,900
Available-for-sale debt investments		–0–		2,900
Buildings		–0–		30,100
Equipment		45,300		20,200
Patents		5,000		6,300
		$107,800		$91,500
Allowance for doubtful accounts		$3,000		$4,500
Accumulated depreciation—equipment		2,000		4,500
Accumulated depreciation—building		–0–		6,000
Accounts payable		5,000		2,900
Dividends payable		–0–		5,000
Notes payable, short-term (nontrade)		3,000		4,000
Long-term notes payable		31,000		25,000
Common stock		43,000		33,000
Retained earnings		20,800		6,600
		$107,800		$91,500

Additional data related to 2017 are as follows.

1.		Equipment that had cost $11,000 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 $5,000.
4.		On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,300 (net of $2,000 taxes).
5.		Investments (available-for-sale) were sold at $1,700 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 $6,500 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. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

NASH CORPORATION
Statement of cash flows (Indirect method)	Amount	Amount
For the year ended December 31, 2017
Cash Flow from operating activities:
Net income		$14,200
Adjustment to reconcile net income to net cash provided by operating activities:
Add:Depreciation expense (see note 1)	$1,900
Add: Loss on sale of equipment-see Note 4	$4,100
Less: Gain from flood damage (see note 3)	($8,200)
Less: Increase in accounts receivables (see note 2)	($3,600)
Add: Patent amortization	$1,300
Less: Gain on sale of investment	($1,700)
Add: Increase in accounts payable	$2,100
Less: Increase in inventory	($3,200)	($7,300)
Net cash provided by operating activities (a)		$6,900
Cash flows from investing activities:
Proceeds from sale of equipment	$2,500
Less: purchase of new equipment-See Note 5	($20,100)
Add: Proceeds from flood damage (see note 3)	$32,300
Add: Proceeds from sale of investment	$4,600
Net cash used in investing activities (b)		$19,300
Cash flows from financing activities:
Less: Payment of dividend	($5,000)
Less: payment of short term note payable ($4000- $3000)	($1,000)
Net cash used in financing activities ©		($6,000)
Net increase (decrease) in cash (a) + (b) + ©		$20,200
Add:Cash balance at December 31, 2013		$13,000
Cash balance at December 31, 2014		$33,200
Supporting disclosures of cash flow information:
Cash paid during the year for:
Interest	$2,000
Income taxes	$6,500
Non cash investing and financing activities:
Retired note payable by issuing common stock	$10,000
Purchased equipment by issuing note payable	$16,000
	$26,000
Computational notes:
Note: 1 Calculating depreciation expense
Accumulated depreciation on equipment sold	$4,400
Less: Decrease in accumulated depreciation on equipment ($2000 - $4500)	($2,500)
Depreciation expense	$1,900
Note:2 calculating increase in accounts receivable
Ending accounts receivable	$12,200
Less: allowance for doubtful accounts	($3,000)
Ending accounts receivables , net (a)	$9,200
Beginning accounts receivables	$10,100
Less: allowance for doubtful accounts	($4,500)
Beginning accounts receivables, net (b)	$5,600
Increase in accounts receivable (a - b)	$3,600
Note: 3 Calculating gain from flood damage
Insurance proceeds	$30,300
Add: taxes	$2,000
Total insurance proceeds (a)	$32,300
Beginning building value	$30,100
Less: accumulated depreciation on building	($6,000)
Book value of building (b)	$24,100
Gain from flood damage ( a- b)	$8,200
Note 4 Loss on sale of equipment-
Cost	11,000
Accumulated depreciation (40% * $11,000)	-4,400
Book value	6,600
Proceeds from sale	-2,500
Loss on sale	4,100
Note 5 Purchase of equipment-
Beginning equipment balance	20,200
Cost of equipment sold	-11,000
Remaining balance	9,200
Purchase of equipment with note	16,000
Adjusted balance	25,200
Ending equipment balance	-45,300
Purchased with cash	20,100