Question

Problem 23-04

Sarasota Company had the following information available at the end of 2020.

SARASOTACOMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2020 AND 2019
		2020			2019
Cash		$9,950			$4,010
Accounts receivable		20,550			12,960
Short-term investments		21,830			29,800
Inventory		42,340			35,030
Prepaid rent		2,990			12,090
Prepaid insurance		2,090			91
Supplies		990			75
Land		124,970			174,030
Buildings		353,000			353,000
Accumulated depreciation—buildings		(104,980	)		(86,810	)
Equipment		522,130			396,610
Accumulated depreciation—equipment		(128,890	)		(111,580	)
Patents		44,790			49,520
Total assets		$911,760			$868,826
Accounts payable		$21,970			$31,740
Income taxes payable		5,030			3,980
Salaries and wages payable		4,980			3,020
Short-term notes payable		10,080			10,080
Long-term notes payable		60,150			70,050
Bonds payable		396,540			396,540
Premium on bonds payable		23,170			27,926
Common stock		241,390			218,640
Paid-in capital in excess of par—common stock		25,100			17,500
Retained earnings		123,350			89,350
Total liabilities and stockholders’ equity		$911,760			$868,826

SARASOTA COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2020
Sales revenue					$1,170,900
Cost of goods sold					752,630
					418,270
Gross margin
Operating expenses
Selling expenses		$78,540
Administrative expenses		156,760
Depreciation/Amortization expense		40,210
Total operating expenses					275,510
Income from operations					142,760
Other revenues/expenses
Gain on sale of land		7,960
Gain on sale of short-term investment		4,000
Dividend revenue		2,380
Interest expense		(51,710	)		(37,370	)
Income before taxes					105,390
Income tax expense					39,370
Net income					66,020
Dividends to common stockholders					(32,020	)
To retained earnings					$34,000

Prepare a statement of cash flows for Sarasota Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale.

Answer 1

Cash Flow Statement
Direct Method
Cash flow from Operating Activities
Cash Receipts
Cash Collected from customers	$ 1,163,310		=1170900+12960-20550
Dividend Revenue	$          2,380
		$     1,165,690
Cash Payments
Cash paid to Suppliers	$     769,710		=752630+31740-21970+42340-35030
Cash paid for Selling & Admin expenses	$     227,154		=78540+156760+3020-4980+2990-12090+2090-91+990-75
Cash paid for Interest	$       56,466		=51710+27926-23170
Cash paid for Income tax	$       38,320		=39370+3980-5030
Total Cash Outflows		$     1,091,650
Cash from operating activities		$           74,040
Cash flow from Investing Activities
Sale of Short term Investments	$       11,970		=29800-21830+4000
Sale of Land	$       57,020		=174030-124970+7960
Purchase of Equipment	$    (125,520)		=396610-522130
Cash from investing activities		$         (56,530)
Cash flow from Financing Activities
Issue of common stock	$       30,350		=241390+25100-218640-17500
Repayment of Notes payable	$        (9,900)		=60150-70050
Dividend Paid	$      (32,020)
Cash used in financing activities		$         (11,570)
Net Increase in cash		$             5,940
Cash balance, prior year		$             4,010
Cash balance, current year		$             9,950

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$           66,020
Adjustments
Depreciation / Amortization	$       40,210
Gain on sale of investment	$        (4,000)
Gain on sale of land	$        (7,960)
Change In current assets & Liabilities
Increase in Accounts Receivable	$        (7,590)
Increase in Inventory	$        (7,310)
Decrease in Prepaid Rent	$          9,100
Increase in Prepaid Insurance	$        (1,999)
Increase in Supplies	$           (915)
Decrease in Accounts payable	$        (9,770)
Increase in Income Tax payable	$          1,050
Increase in Salaries and Wages payable	$          1,960
Decrease in Premium on Bonds payable	$        (4,756)
Total Adjustments		$             8,020
Net Cash from operating activities		$           74,040