Question

QUESTION 52

1. The XYZ Corporation reported the following balance sheet data for 2018 and 2017:
   

   ​	2018	2017
   Cash	$60,375	$22,955
   Available-for-sale debt securities	​	​
   (not cash equivalents)	15,500	85,000
   Accounts receivable	91,000	68,250
   Inventory	165,000	145,000
   Prepaid insurance	1,500	2,000
   Land, buildings, and equipment	1,260,000	1,125,000
   Accumulated depreciation	(610,000)	(572,000)
   Total assets	$983,375	$876,205
   Accounts payable	$70,340	$148,670
   Salaries payable	20,000	24,500
   Notes payable (current)	25,000	75,000
   Bonds payable	200,000	0
   Common stock	300,000	300,000
   Retained earnings	368,035	328,035
   Total liabilities and shareholders' equity	$983,375	$876,205

   
   Additional information for 2018:
   (1.) Sold available-for-sale debt securities costing $69,500 for $74,000.
   (2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000.
   (3.) Issued 6% bonds payable at face value, $200,000.
   (4.) Purchased new equipment for $155,000 cash.
   (5.) Paid cash dividends of $20,000.
   (6.) Net income was $50,000.
   
   Required:
     
   Prepare a statement of cash flows for 2018 in good form using the indirect method for cash flows from operating activities. USE Worksheet Provide in class.

Answer 1

Solution

XYZ Corporation
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flows from operating activities:
Net income		$    50,000.00
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of Investment	$     (4,500.00)
Gain on sale of Equipment	$       (1,000.00)
Depreciation expense	$    53,000.00
Incease in accounts receivables	$   (22,750.00)
Increase in inventory	$   (20,000.00)
Decrease in prepaid insurance	$             500.00
Decrease in accounts payable	$   (78,330.00)
Decrease in salaries payable	$     (4,500.00)
		$   (77,580.00)
Net cash from Operating Activities		$   (27,580.00)
Cash flows from investing activities:
Sale of Equipment	$      6,000.00
Purchase of Equipment	$ (1,55,000.00)
Sale of Investment	$    74,000.00
Net cash from Investing Activities		$   (75,000.00)
Cash flows from financing activities:
Cash received from bonds issue	$ 2,00,000.00
Repayment of notes payable	$   (50,000.00)
Dividends paid	$   (10,000.00)
Net cash from Financing Activities		$ 1,40,000.00
Net change in cash during the year		$    37,420.00
Add: Beinning cash balance		$    22,955.00
Ending cash balance		$    60,375.00

Dividends actually paid is $10000 as per the reconciliation below.

Dividends paid
Retained earnings beginning balance	$   3,28,035.00
Add: Net income	$       50,000.00
	$   3,78,035.00
Less: Retained earnings Ending balance	$   3,68,035.00
Dividends paid	$       10,000.00

Alternatively net income could be posted as $60000 and dividends would be $20000. The solution will be correct then too.

Leave a comment in case of any confusion.