Question

Following are selected balance sheet accounts of Pharoah Bros. Corp. at December 31, 2020 and 2019, and the increases or decreases in each account from 2019 to 2020. Also presented is selected income statement information for the year ended December 31, 2020, and additional information.

Selected balance sheet accounts
Assets		2020			2019			Increase (Decrease)
Accounts receivable		$34,100			$23,900			$10,200
Property, plant, and equipment		277,700			247,800			29,900
Accumulated depreciation—plant assets		(176,500	)		(168,200	)		(8,300	)
Liabilities and stockholders’ equity		2020			2019			Increase
Bonds payable		$ 49,300			$46,500			$2,800
Dividends payable		7,900			4,900			3,000
Common stock, $1 par		22,200			19,200			3,000
Additional paid-in capital		9,100			3,000			6,100
Retained earnings		103,800			90,500			13,300
Selected income statement information for the year ended December 31, 2020:
Sales revenue		$156,300
Depreciation		37,700
Gain on sale of equipment		14,700
Net income		31,000

Additional information:

1.		During 2020, equipment costing $45,000 was sold for cash.
2.		Accounts receivable relate to sales of merchandise.
3.		During 2020, $20,200 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.

Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.

				Activity
(a)		Payments for purchase of property, plant, and equipment.		select a kind of activityFinancingInvestingOperating FinancingInvestingOperating		$enter a dollar amount
(b)		Proceeds from the sale of equipment.		select a kind of activityFinancingInvestingOperating FinancingInvestingOperating		$enter a dollar amount
(c)		Cash dividends paid.		select a kind of activityFinancingInvestingOperating FinancingInvestingOperating		$enter a dollar amount
(d)		Redemption of bonds payable.		select a kind of activityFinancingInvestingOperating FinancingInvestingOperating		$enter a dollar amount

Answer 1

Determination of category and amount to be reported in statement of cash flows
Particulars	Activity	Amount
Payment for Purchase of Property, Plant and Equipment	Investing	$74,900.00
Proceed from the sale of equipment	Investing	$30,300.00
Cash dividend paid	Financing	$14,700.00
Redemption of bond payable	Financing	$17,400.00

Working:

Computation of payment for purchase of plant and Equipment
Particulars	Amount
Ending balance of Property, Plant & Equipment	$277,700.00
Add: Original cost of equipment sold	$45,000.00
Less: Beginning balance of property, plant and Equipment	$247,800.00
Payment made for purchase of plant and Equipment	$74,900.00

Computation of proceed from sale of equipment
Particulars	Amount
Original cost of equipment sold	$45,000.00
Accumulated depreciation on equipment sold ($168,200 + $37,700 - $176,500)	$29,400.00
Carrying value of equipment sold	$15,600.00
Add: gain on sale of equipment	$14,700.00
Proceed from sale of equipment	$30,300.00

Computation of cash dividend paid
Particulars	Amount
Opening retained earnings	$90,500.00
Add: Income for the period	$31,000.00
Less: Ending balance of retained earnings	$103,800.00
Dividend declared	$17,700.00
Add: Beginning balance of dividend payable	$4,900.00
Less: Ending balance of dividend payable	$7,900.00
Dividend paid	$14,700.00

Computation of Redemption of bond payable
Particulars	Amount
Opening bonds payable	$46,500.00
Add: Bond issued in exchange of plant and equipment	$20,200.00
Less: Ending balance of bond payable	$49,300.00
Redemption of bond payable	$17,400.00