Question

Mackey Limited reported the following selected balances: Account Title 20X4 20X3 Machinery $ 393,000 $ 239,400 Accumulated depreciation, machinery* (148,600 ) (85,800 ) Bonds payable* (207,600 ) (138,900 ) Common shares* (539,800 ) (347,400 ) Preferred shares* (34,700 ) (208,500 ) Retained earnings* (324,400 ) (248,100 ) *Brackets denote a credit balance. Other information: There was a stock dividend of $34,700 on common shares and a cash dividend of $48,600. Of the preferred shares, $69,500 were retired for cash, and $104,300 were converted into bonds payable. Some common shares were issued for cash during the period. Machinery with a net book value of $39,000 and an original cost of $67,600 was sold during the year at a loss of $1,500. Other machinery was purchased for cash. Any unexplained change in the accounts should be assumed to be because of logical transactions. Required: Prepare a partial statement of cash flows using indirect method. (Deductible amounts and Cash outflows should be indicated with minus sign.)

Select the transactions that are not included in the SCF. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Depreciation expense unanswered Stock dividends unanswered Preferred shares converted to bonds payable unanswered Preferred shares retired unanswered Cash dividend paid

Answer 1

Mackey Limited		2004
Partial Cash Flow Statement
Particulars		Amount in $
Cash flows from operating activities
Net Income before tax (refer note 1)		$ 159,600.00
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense ($148,600 - $85,800)		$    62,800.00
Loss on sale of machinery		$      1,500.00
Dividends on preferred and common stock ($34,700 + $48,600)		$    83,300.00
Cash flow generated from operating activities		$ 307,200.00
Cash generated from operating activities		$ 307,200.00
Income taxes paid		$                 -
Net cash generated from operating activities	A	$ 307,200.00
Cash flows from investing activities
Purchase of Property, Plant and Equipment ($239400 - $37,500 - $393,000)		$ -191,100.00
Sale of Property, Plant and Equipment		$    37,500.00
Net cash used in investing activities	B	$ -153,600.00
Cash flows from financing activities
Bonds issued during the year (refer note 2)		$    35,600.00
Cash paid to retire preference shares ($208,500-$-104,300-$34,700)		$   -69,500.00
Cash paid for dividends		$   -83,300.00
Net cash used in financing activities	C	$ -117,200.00
Net decrease in cash and cash equivalents	(A+B+C)	$    36,400.00

1. Statement of retained earnings
Opening balance of retained earnings	$       248,100
Less-: Dividends paid during the year ($34,700 + $48,600)	$        -83,300
Less-: Closing balance of retained earnings	$      -324,400
Profit before tax (assuming no tax expenses)	$      -159,600
2. Reconciliation of bonds payable
Closing bonds payable	$       207,600
Less-: Conversion into bonds payable	$      -104,300
Less-: Closing bonds payable	$      -138,900
Bonds issued during the year	$        -35,600
3. Sale Value of machinery
Net book value	$         39,000
Less-: Loss on sale of machinery	$           1,500
Sale consideration	$         37,500