Question

Problem 5-7 (Essay) Aero Inc. had the following balance sheet at December 31, 2016. AERO INC. BALANCE SHEET DECEMBER 31, 2016 Cash $ 20,000 Accounts payable $ 30,000 Accounts receivable 21,200 Bonds payable 41,000 Investments 32,000 Common stock 100,000 Plant assets (net) 81,000 Retained earnings 23,200 Land 40,000 $194,200 $194,200 During 2017, the following occurred. 1. Aero liquidated its available-for-sale investment portfolio at a loss of $5,000. 2. A tract of land was purchased for $38,000. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $10,000 were declared and paid to stockholders. 5. Net income for 2017 was $35,000, including $12,000 in depreciation expense. 6. Land was purchased through the issuance of $30,000 in additional bonds. 7. At December 31, 2017, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000. (

d) Illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.

Answer 1

	Cash flow from operating activities
	Net income		35000
	Adjustments to reconcile the net income
	Depreciation expense	12000
	Loss on sale of ivestment	5000
	Changes in current asset and liabilities
	Increase in accounts receivable	-20800
	Decrease in Inventory
	Decrease in accounts payable	10000
	Increase in Salaries and wages payable
			6200
	Cash flow from operating activities		41200
	Cash flow from Investing activities
	Investment sold	27000
	Land purchased	-8000
	Cash flow from Investing activities		19000
	Cash flow from Financing activities
	Common stock
	Long term notes payable
	Dividend paid	-10000
	Cash flow from Financing activities		-10000
	Net Cash and cash equivalent		50200
Add	Beginning cash and cash equivalent		20000
	Ending cash and cash equivalent		70200