Question

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

		December 31
		2020		2019
Cash		$33,400		$12,900
Accounts receivable		12,200		10,000
Inventory		11,800		9,100
Available-for-sale debt investments		–0–		2,900
Buildings		–0–		29,800
Equipment		45,200		20,200
Patents		5,000		6,300
		$107,600		$91,200
Allowance for doubtful accounts		$3,000		$4,600
Accumulated depreciation—equipment		2,000		4,500
Accumulated depreciation—building		–0–		5,900
Accounts payable		5,000		2,900
Dividends payable		–0–		4,900
Notes payable, short-term (nontrade)		3,000		4,000
Long-term notes payable		31,000		25,000
Common stock		43,000		33,000
Retained earnings		20,600		6,400
		$107,600		$91,200

Additional data related to 2020 are as follows.

1.		Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500.
2.		$10,000 of the long-term note payable was paid by issuing common stock.
3.		Cash dividends paid were $4,900.
4.		On January 1, 2020, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,100 taxes).
5.		Debt investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
6.		Cash was paid for the acquisition of equipment.
7.		A long-term note for $16,000 was issued for the acquisition of equipment.
8.		Interest of $2,000 and income taxes of $6,400 were paid in cash.

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).)

Answer 1

Statement of Cashflow
Net Income			$ 14,200.00
Add
Depreciation**			$     1,900.00
Loss on sale of Equipment*			$     4,100.00
Amortisation of Patent (6300-5000)			$     1,300.00
Less Gain on Insurance proceed***			$   -8,200.00
Less Gain on sale of available for sale	Given		$   -1,700.00
Adjustment to reconcile Net income to net cash provided by operating Activities			$ 11,600.00
Increase in Account Receivable		$   -3,800.00
Increase in Inventory		$   -2,700.00
Increase in Account Payable		$    2,100.00
Decrease in Note payable-Short Term		$   -1,000.00	$   -5,400.00
Net Cash flow from operating Activities			$    6,200.00	A
Cashflows from Investing Activities
Collection from sale of Equipment*		$    2,500.00
Collection from Insurance Proceed***		$ 32,100.00
Collection from sale of Available for sale (2900+1700)		$    4,600.00
Payment toward purchase of Equipment**		$ -36,000.00	$     3,200.00
Net Cashflows from Investing Activities			$    3,200.00	B
Cashflows from Financing Activities
Payment of Long Term Note given		$ -10,000.00
Issuance of common Stock (Given)		$ 10,000.00
Payment of Dividend (Given)		$   -4,900.00
Receipt from issuance of Long term Note (Given)		$ 16,000.00	$ 11,100.00
Net Cashflows from Financing Activities			$ 11,100.00	C
Net Increase/(Decrease) in Cash			$ 20,500.00	A+B+C
Beginning Cash in Hand		$ 12,900.00
Ending Cash in Hand		$ 33,400.00	$ 20,500.00
Net Increase/(Decrease) in Cash

Sale of Equipment*
Equipment Value	$ 11,000.00
Accu Depn	$   4,400.00
Net Book Value	$   6,600.00
Less proceed	$ -2,500.00
Loss of sale of Equip.	$   4,100.00

	Calculation of Equipment**
	Beg Bal	Sold during year	After sales	Ending Bal	Current Month Addition
Equipment Value	$ 20,200.00	-$11,000.00	$9,200.00	$45,200.00	$ 36,000.00
Accu Depn	-$4,500.00	-$4,400.00	-$100.00	-$2,000.00	-$1,900.00

Calculation of Building***
Building	$ 29,800.00
Acc. Depn	$ -5,900.00
Net Book Value	$ 23,900.00
Collection	$ 32,100.00
Gain on sales	$   8,200.00