Question

Below are Lebnas Corp.’s 2019 income statement and comparative balance sheet at 12/31/2019 and 12/31/2018.

Additional information:

1. On December 31, 2018, Lebnas acquired 25% of Island Co.’s common stock for $609,000. On that date, the carrying value of Island’s assets and liabilities, which approximated their fair values, was

$2,435,000. Island reported income of $319,000 for the year ended December 31, 2019. No dividend income was received by Lebnas on Island’s common stock during the year 2019.

2. During 2018, Lebnas loaned $797,500 to POI Co., an unrelated company. POI made the first semi-annual principal repayment of

$72,500, plus interest at 10%, on December 31, 2018. POI is current on the loan as of December 31, 2019.

3. On January 2, 2019, Lebnas sold equipment costing $145,000, with a carrying amount of $44,950 for cash.

4. On December 31, 2019, Lebnas entered into a finance lease for a new factory. The present value of the annual rental payments is

$1,232,500, which equals the fair value of the building. Lebnas will make the first rental payment of $174,000 on 1/2/2020.

Note: The capitalized leased asset under agreement is included in Property, Plant and Equipment on the balance sheet.

5. Depreciation expense of $230,550 is included in Cost of Goods Sold.

6. Lebnas declared and paid cash dividends as follows.

       2019                   2018       

Declared Paid Amount

December 15, 2019

February 28, 2020

$145,000

December 15, 2018

February 28, 2019

$87,000

Required: Prepare a statement of cash flows for Lebnas Corp. for the year ended 12/31/2019, using the indirect method and good form.

Lebnas Corporation Balance Sheet

As of 12/31 …

	2019		2018
Cash	942,500		739,500
Accounts receivable	1,827,000		1,580,500
Inventory	2,230,100		1,986,500
Property, plant, and equipment	3,886,000		2,556,350
Accumulated depreciation	(1,232,500)		(1,102,000)
Investment in Island Co.	688,750		609,000
Loan receivable	507,500		652,500
Total assets	8,849,350		7,022,350
Accounts payable	1,566,000		1,319,500
Income taxes payable	130,500		108,750
Dividends payable	145,000		87,000
Capital lease obligation	1,232,500		‐
Common stock, $1 par	580,000		580,000
Paid‐in capital in excess of par	3,045,000		3,045,000
Retained earnings	2,150,350		1,882,100
Total liabilities and stockholders’ equity	8,849,350		7,022,350

Lebnas Corporation Income Statement For the year …

	2019
Sales	1,377,500
Cost of goods sold*	(1,001,950)
Gross profit	375,550
Loss on equipment sold	(15,950)
Investment income (Island Co.)	79,750
Income tax expense	(26,100)
Net Income	413,250

*Includes depreciation expense.

Answer 1