Question

Kay Wing, Inc., prepared the following balance sheet at December 31, 20X0. Balance Sheet as of December 31, 20X0:

Cash $ 65,000

Accounts receivable 37,000

Inventory 70,000

Long-term investments 20,000

Land 39,000

Plant and equipment (net) 109,000

Total assets $ 340,000

Accounts payable $ 33,000

Taxes payable 4,000

Bonds payable 80,000

Capital stock 90,000

Retained earnings 133,000

Total liabilities and stockholders’ equity $ 340,000

The following occurred during 20X1.

1. $35,000 Note payable was issued. 2. Land was purchased for $50,000 3. Bonds payable (maturing in 20X5) in the amount of $30,000 were retired by paying $30,000 cash. 4. Capital stock in the amount of $40,000 was issued at par value. 5. The company sold surplus equipment for $14,000. The equipment had a book value of $14,000 at the time of the sale. 6. Net income was $35,500. 7. Cash dividends of $5,000 were paid to the stockholders. 8. 100 shares of stock of another company (considered short-term investments) were purchased for $8,300. 9. $75,000 in bonds were issued. The next day, the proceeds were used to purchase a new building. 10. $12,000 of depreciation was recorded on the plant and equipment. 11. At December 31, 20X1, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes payable were unchanged from 20X0.

Required:

1. Prepare a statement of cash flows for 20X1.

2. Prepare the December 31, 20X1, balance sheet for Kay Wing, Inc.

Answer 1

Kay wing, Inc.
Statement of Cash Flows
For the Year Ended December 31,2021
Cash flows from operating activities:
Net income		$35,500
Adjustments to reconcile the net income
Depreciation expense	12000
Changes in current asset and liabilities
Increase in accounts receivable	-4500
Increase in Inventory	-3000
Decrease in accounts payable	-7500	-3000
Net Cash Provided by Operating activities (A)		$32,500
Cash flows from Investing activities
Purchase of land	-50000
Sale of Equipments	14000
Purchase of short-term investment	-8300
Net Cash Used by Investing Activities (B)		$-44300
Cash flows from Financing activities
Common Stock Issued	40000
Bond payable	-30000
Dividend paid	-5,000
Notes payable	35,000
Net Cash Provided by Financing activities (C)		$40000
Net increase (decrease) in cash		$ 28200
Cash Balance at December 31, 2020		65,000
Cash Balance at December 31, 2021		93,200

Kay wing, Inc.
Balance Sheet
For the Year Ended December 31,2021
	Amount ($)
Asset
Cash	93200
Accounts receivable	41500
Inventory	73000
Long-term investments	20000
Land	89000
Plant and equipment	158000
Short-term investment	8300
Total assets	483000
Liabilities
Accounts payable	25500
Taxes payable	4000
Note payable	35000
Bonds payable	125000
Stockholders equity
Capital stock	130000
Retained earnings	163500
Total liabilities and stockholders equity	483000

Working Note

Plant and equipment (net) (at December 31, 2020) - Sale of equipment (book value) - Depreciation + Purchase of building

Plant and equipment =  109,000 -14000 -12000 +75000 = 158000

Retained earnings = Opening Retained earning + net inome - dividend

=133,000 +35500 - 5000 = 163500