Question

The following is Aerie Corp.'s comparative balance sheet accounts worksheet at December 31, Year 8 and Year 7, with a column showing the increase (decrease) from Year 7 to Year 8.

Comparative balance sheet worksheet	Year 8	Year 7	Net Change
Cash	$ 800,000	$ 700,000	$100,000
Accounts receivable	1,128,000	1,168,000	(40,000)
Inventories	1,850,000	1,715,000	135,000
Property, plant, and equipment	3,307,000	2,967,000	340,000
Accumulated depreciation	(1,165,000)	(1,040,000)	(125,000)
Investment in Acme, Inc., at equity	305,000	275,000	30,000
Loan receivable	270,000	0	270,000
Total assets	$6,495,000	$5,785,000	$710,000
Accounts payable	$1,015,000	$955,000	$60,000
Income taxes payable	30,000	50,000	(20,000)
Dividends payable	80,000	90,000	(10,000)
Capital lease obligation	400,000	0	400,000
Capital stock, common, $1 par	500,000	500,000	0
Additional paid-in capital	1,500,000	1,500,000	0
Retained earnings	2,970,000	2,690,000	280,000
Total liabilities and shareholders' equity	$6,495,000	$5,785,000	$710,000

Additional information:

On December 31, Year 7, Aerie acquired 25% of Acme's common stock for $275,000. There is no goodwill attributable to the investment, which is appropriately accounted for by the equity method. Acme reported income of $120,000 for the year ended December 31, Year 8. No dividend was paid on Acme's common stock during the year.

During Year 8, Aerie loaned $300,000 to Sky Co., an unrelated company. Sky made the first semi-annual principal payment of $30,000 on October 1, Year 8.

On January 2, Year 8, Aerie sold equipment costing $60,000, with a carrying amount of $35,000, for $40,000 cash.

On December 31, Year 8, Aerie entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Aerie made the first rental payment of $60,000 when due on January 2, Year 9.

Net income for Year 8 was $360,000.

Aerie declared and paid cash dividends for both Year 7 and Year 8. For Year 7, Aerie declared a $90,000 dividend and paid it on February 28, Year 8. For Year 8, Aerie declared an $80,000 dividend to be paid on February 8, Year 9.

Using the indirect method, complete Aerie's statement of cash flows for the year ended December 31, Year 8, using the information above. Enter the appropriate amounts in the designated cells below. Indicate negative numbers by using a leading minus (-) sign.

Aerie Corp.
Statement of Cash Flows
For the year ended December 31, Year 8

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Gain on sale of equipment
Equity in income of Acme, Inc.
Change in accounts receivable
Change in inventories
Change in accounts payable
Change in income taxes payable
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from equipment sale
Loan to Sky Co.
Proceeds from principal payment on loan receivable
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid
Net cash used in financing activities
Net increase in cash
Beginning balance
Ending balance

Answer 1

Solution:

Aerie Corp.
Statement of Cash Flows
For year 8
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income	$360,000.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense ($125,000 + $25,000)	$150,000.00
Gain on sale of equipment	-$5,000.00
Equity in income of Acme Inc.	-$30,000.00
Change in accounts receivable	$40,000.00
Change in inventories	-$135,000.00
Change in accounts payable	$60,000.00
Change in income taxes payable	-$20,000.00
Net Cash provided by operating activities		$420,000.00
Cash Flow from Investing Activities:
Proceeds from equipment sale	$40,000.00
Loan to Sky Co	-$300,000.00
Proceeds from principal payment on loan receivable	$30,000.00
Net Cash used in Investing activities		-$230,000.00
Cash Flow from Financing Activities:
Dividend Paid	-$90,000.00
Net Cash Provided by financing activities		-$90,000.00
Net Increase / (Decrease) in Cash		$100,000.00
Beginning balance		$700,000.00
Ending balance		$800,000.00