Question

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

		December 31
		2017		2016
Cash		$33,100		$13,100
Accounts receivable		12,300		9,900
Inventory		12,000		9,000
Available-for-sale debt investments		–0–		3,000
Buildings		–0–		29,700
Equipment		50,200		20,200
Patents		4,900		6,300
		$112,500		$91,200
Allowance for doubtful accounts		$2,900		$4,600
Accumulated depreciation—equipment		2,000		4,600
Accumulated depreciation—building		–0–		6,000
Accounts payable		5,100		3,100
Dividends payable		–0–		5,100
Notes payable, short-term (nontrade)		2,900		3,900
Long-term notes payable		30,700		25,200
Common stock		47,900		32,900
Retained earnings		21,000		5,800
		$112,500		$91,200

Additional data related to 2017 are as follows.

1.		Cash dividends paid were $5,100.
2.		Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,000.
3.		On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $31,900.
4.		A long-term note for $20,500 was issued for the acquisition of equipment.
5.		$15,000 of the long-term note payable was paid by issuing common stock.
6.		Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
7.		Interest of $1,900 and income taxes of $6,600 were paid in cash.
8.		Cash was paid for the acquisition of equipment.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

SARASOTA CORPORATION Statement of Cash Flows For the Year Ended December 31, 2017
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Adjustments to reconcile net income to net cash provided by operating activities:
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Answer 1

SARASOTA CORPORATION
Statement of Cash Flows
For the Year Ended December 31,2017
Cash Flows From Operating Activities :
Net Income ($21,000 - $5,800 )		$ 15,200
Adjustments to reconcile Net Income to Net
Cash Provided by Operating Activities
Gain from Flood Damage (See in Note 4 )	($8,200)
Depreciation Expense (See Note 2 )	$ 1,800
Patent Amortization ($6,300 -$4,900)	$ 1,400
Loss on Sale of Equipment (Note 1 )	$ 4,600
Gain on Sale of Investment	($1,700)
Increase in Accounts receivable (Net) {($9,900-$4,600)-($12,300-$2900)}	($4,100)
Increase in Inventory ($9,000 -$12,000 )	($3,000)
Increase in Accounts Payable ($3,100 -$5,100 )	$ 2,000
		($7,200)
Net Cash Provided by Operating Activities		$ 8,000
Cash Flows from Investing Activities :
Sale of Investments ($3,000 +$1,700)	$ 4,700
Sale of Equipment (See Note 1)	$ 2,000
Purchase of Equipment (See Note 3 )	($20,500)
Proceeds from Floods Damage to Building	$ 31,900
Net Cash Provided by Investing Activities		$ 18,100
Cash Flows from Financing Activities :
Payment of Short-Term Note Payable ($2,900 -$3,900)	($1,000)
Payment of Dividends	($5,100)
Net Cash Provided by Financing Activities		($6,100)
Net Increase in Cash		$ 20,000
Cash , January 1,2017		$ 13,100
Cash , December 31 ,2017		$ 33,100

Explanation :
Notes :
1) Compute the Loss on Sale of Equipment :
Particular	Amount($)
Cost of Equipment	$ 11,000
Less: Accumulated Depreciation ($11,000*40%)	($4,400)
Book Value of Equipment	$ 6,600
Less : Sale of Equipment	($2,000)
Loss on sale of Equipment	$ 4,600
2) Compute the Depreciation Expenses :
Accumulated Depreciation on Equipment sold	$ 4,400
Less: Decrease in Accumulated Depreciation ($4,600 -$2,000)	($2,600)
Depreciation Expenses	$ 1,800

3) To Find out Purchase of Equipment for Cash :
Equipment
Beg.Bal.	$ 20,200	Bank (Sold)	$ 2,000
Long term Note	$ 20,500	loss on sale of Equipment	$ 4,600
Bank ( Bal in Fig )	$ 20,500	Accumulated Depreciation	$ 4,400
(Purchase)		End.Bal.	$ 50,200
	$ 61,200		$ 61,200

4) Compute the Gain From Flood Damage :
Insurance Claim	$ 31,900
Less: Building Net Accumulated Depreciation ($29,700-$6,000)	($23,700)
Gain on Flood Damage	$ 8,200