Question

Swasey Company provided the following partial comparative balance sheets and the income statement for 20X2.

Swasey Company

Comparative Balance Sheets

At December 31, 20X1 and 20X2

1		20X1	20X2
2	Current assets:
3	Cash	$235,500.00	$675,000.00
4	Accounts receivable	$753,000.00	$586,500.00
5	Inventories	303,000.00	316,000.00
6	Long-term assets:
7	Plant and equipment	2,193,000.00	2,151,000.00
8	Accumulated depreciation	(1,201,000.00)	(1,291,000.00)
9	Land	992,000.00	1,443,500.00
10	Total assets	$3,275,500.00	$3,881,000.00
11	Current liabilities:
12	Wages payable	$700,000.00	$511,000.00
13	Long-term liabilities:
14	Bonds payable	0.00	382,000.00
15	Mortgage payable	102,500.00	0.00
16	Total liabilities	$802,500.00	$893,000.00
17	Stockholders’ equity:
18	Common stock	375,000.00	375,000.00
19	Paid-in capital in excess of par	282,000.00	282,000.00
20	Retained earnings	1,816,000.00	2,331,000.00
21	Total stockholders’ equity	2,473,000.00	2,988,000.00
22	Total liabilities and stockholders’ equity	$3,275,500.00	$3,881,000.00

Swasey Company

Income Statement

For the Year Ended December 31, 20X2

1	Revenues	$3,003,000.00
2	Gain on sale of equipment	90,000.00
3	Cost of goods sold	(1,914,000.00)
4	Depreciation expense	(270,000.00)
5	Interest expense	(8,500.00)
6	Net income	$900,500.00

During the year, Swasey Company sold equipment with a book value of $285,000 for $375,000 (original purchase cost of $465,000). New equipment was purchased.

	Required:
1.	Prepare a statement of cash flows for Swasey for 20X2.
2.	Reflect on the relationship between the statement of cash flows and the change in cash.

Please use the following amount descriptions

Amount Descriptions
Add cost of goods sold
Add interest expense
Decrease in accounts receivable
Decrease in wages payable
Decrease in inventories
Depreciation expense
Gain on sale of equipment
Increase in accounts receivable
Increase in wages payable
Increase in inventories
Issuance of bonds payable
Loss on sale of equipment
Net cash from financing activities
Net cash from investing activities
Net cash from operating activities
Net decrease in cash
Net income
Net increase in cash
Net loss
Payment of dividends
Payment of mortgage
Purchase of equipment
Purchase of land
Receipt of dividends
Sale of equipment

Answer 1

1.

Swasey Company

Statement of Cash Flows

Particulars	Amount ($)	Amount ($)
Cash flows from operating activities
Net income		900500
Add(less)
Decrease in accounts receivable (753000-586500)	166500
Decrease in wages payable (700.000 - 511,000)	-189000
Increase in inventory (316000-303000)	-13000
Depreciation expense	270000
Gain on sale of equipment	-90000
	144500	144500
Net cash flows from operating activities		1,045,000
Cash flows from investing activities
Purchase of plant and equipment (2193,000 -465,000 - 2151,000)		-423000
Purchase of land (1443,500-992,000)		-451500
Sale of equipment		375000
Net cash used for investing activities		-499,500
Cash flows from financing activities
Mortgage paid		-102500
Issue of bonds		382000
Dividends paid (1816,000 + 900,500-2331,000)		-385500
Net cash flow provided by financing activities		-106000
Increase in cash		439,500
Cash at the beginning of the year		235500
Cash at the end of year		675,000

Working notes

Net income = 900,500

Opening retained earnings = 1816,000

Closing retained earnings = 2331,000

Dividends paid = 1816,000 + 900,500-2331,000 = 385,500

2. The cash flow statement results in the movement of cash. The cash balance at the beginning is added to movement in cash during the period to arrive at the closing balance of cash.