Question

QUESTION 23

1. Statement of Cash Flows:
   
   Scroll down to complete all parts of this task.
   
   Presented below are the balance sheet accounts of Kern, Inc. as of December 31, year 4 and year 3 and their net changes.
   

   Assets	Year 4	Year 3	Net change
   Cash	$   471,000	$   307,000	$ 164,000
   Marketable equity securities, at cost	150,000	250,000	(100,000)
   Allowance to reduce marketable equity securities to market	(10,000)	(25,000)	15,000
   Accounts receivable, net	550,000	515,000	35,000
   Inventories	810,000	890,000	(80,000)
   Investment in Word Corp., at equity	420,000	390,000	30,000
   Property, plant, and equipment	1,145,000	1,070,000	75,000
   Accumulated depreciation	(345,000)	(280,000)	(65,000)
   Patent, net	109,000	118,000	(9,000)
   Total assets	$3,300,000	$3,235,000	$   65,000
   Liabilities and Stockholders' Equity
   A/P and accrued liabilities	$   845,000	$   960,000	$(115,000)
   Note payable, long term	600,000	900,000	(300,000)
   Deferred tax liability	190,000	190,000	--
   Common stock, $10 par value	850,000	650,000	200,000
   Additional paid-in capital	230,000	170,000	60,000
   Retained earnings	585,000	365,000	220,000
   Total liabilities and
   stockholders' equity	$3,300,000	$3,235,000	$    65,000

   
   Additional Information:
   • On January 2, year 4, Kern sold equipment costing $45,000, with a carrying amount of $28,000, for $18,000 cash.
   • On March 31, year 4, Kern sold one of its marketable equity security holdings for $119,000 cash.
   • There were no other transactions involving marketable equity securities.
   • On April 15, year 4, Kern issued 20,000 shares of its common stock for cash at $13 per share.
   • On July 1, year 4, Kern purchased equipment for $120,000 cash.
   • Kern's net income for year 4 is $305,000. Kern paid a cash dividend of $85,000 on October 26, year 4.
   • Kern acquired a 20% interest in Word Corp.'s common stock during year 1. There was no goodwill attributable to the investment which is appropriately accounted for by the equity method. Word reported net income of $150,000 for the year ended December 31, year 4. No dividend was paid on Word's common stock during year 4.
   Prepare a statement of cash flows for Kern, Inc. for the year ended December 31, year 4 using the indirect method. Enter deductions/uses as a negative number. Round all amounts to the nearest whole number.
   

   Item	Amount	Amount
   Cash flows from operating activities:
   Net income	[1____]
   Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation	[2____]
   Amortization of patent	[3____]
   Loss on sale of equipment	[4____]
   Equity in income of Word Corp.	[5____]
   Gain on sale of marketable equity securities	[6____]
   Decrease in allowance to reduce marketable equity securities to market	[7____]
   Increase in accounts receivable	[8____]
   Decrease in inventories	[9____]
   Decrease in accounts payable and accrued liabilities	[10___]
   Net cash provided by operating activities		[11___]
   Cash flows from investing activities:
   Sale of marketable equity securities	[12___]
   Sale of equipment	[13___]
   Purchase of equipment	[14___]
   Net cash provided by investing activities		[15___]
   Cash flows from financing activities:
   Issuance of common stock	[16___]
   Cash dividend paid	[17___]
   Payment on note payable	[18___]
   Net cash used in financing activities		[19___]
   Net increase in cash		[20___]
   Cash at beginning of year		307,000
   Cash at end of year		[21___]

   
   Note: Please enter your responses below. Find a way to make them correspond with the number within the table and separate them with semicolons. Use the following examples for [1____], [2____], and [3____] as a reference for formulating your responses:
   
   Example A: (1)555,000; (2)90,555; (3)1,234;
   Example B: 1--555,000; 2--90,555; 3--1,234;
   Example C: 1 = 555,000; 2 = 90,555; 3 = 1,234;
   
   Be sure that your answers are clear to your Instructor with whichever method you choose.

   -- Font family --Andale MonoArialArial BlackBook AntiquaComic Sans MSCourier NewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchet MSVerdanaWebdingsWingdings -- Font size --1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt) -- Format --HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code -- Font family -- -- Font size -- Path: p Words:0

Answer 1

Item	Amount	Amount
Cash flows from operating activities:
Net income	305000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation*	82000
Amortization of patent	9000
Loss on sale of equipment ($28000 - $18000)	10000
Equity in income of Word Corp.	-30000
Gain on sale of marketable equity securities ($119000 - $100000)	-19000
Decrease in allowance to reduce marketable equity securities to market	-15000
Increase in accounts receivable	-35000
Decrease in inventories	80000
Decrease in accounts payable and accrued liabilities	-115000
Net cash provided by operating activities		272000
Cash flows from investing activities:
Sale of marketable equity securities	119000
Sale of equipment	18000
Purchase of equipment	-120000
Net cash provided by investing activities		17000
Cash flows from financing activities:
Issuance of common stock (20000 x $13)	260000
Cash dividend paid	-85000
Payment on note payable	-300000
Net cash used in financing activities		-125000
Net increase in cash		164000
Cash at beginning of year		307000
Cash at end of year		471000

*Depreciation:

Accumulated depreciation reversed on equipment sold = $45000 - $28000 = $17000

Depreciation = $345000 - ($280000 - $17000) = $345000 - $263000 = $82000