The comparative balance sheets for Cullumber Corporation show the following information. December 31 2020 2019 Cash...

The comparative balance sheets for Cullumber Corporation show the following information.

	December 31
	2020	2019
Cash	$33,600	$12,900
Accounts receivable	12,300	10,100
Inventory	12,200	8,900
Available-for-sale debt investments	–0–	3,000
Buildings	–0–	29,600
Equipment	45,200	19,900
Patents	5,100	6,200
	$108,400	$90,600

Allowance for doubtful accounts	$2,900	$4,400
Accumulated depreciation—equipment	2,000	4,500
Accumulated depreciation—building	–0–	6,100
Accounts payable	5,100	3,000
Dividends payable	–0–	4,900
Notes payable, short-term (nontrade)	2,900	4,000
Long-term notes payable	31,000	25,000
Common stock	43,000	33,000
Retained earnings	21,500	5,700
	$108,400	$90,600

Additional data related to 2020 are as follows.

1.		Equipment that had cost $11,100 and was 40% depreciated at time of disposal was sold for $2,500.
2.		$10,000 of the long-term note payable was paid by issuing common stock.
3.		Cash dividends paid were $4,900.
4.		On January 1, 2020, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,100 (net of $2,000 taxes).
5.		Debt investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
6.		Cash was paid for the acquisition of equipment.
7.		A long-term note for $16,000 was issued for the acquisition of equipment.
8.		Interest of $2,000 and income taxes of $6,400 were paid in cash.

Prepare a statement of cash flows using the indirect method.

Solutions

Expert Solution

Cash flow statement (Indirect method)

Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Net income (Working Note-1)		15800
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation expense (Working note - 2)	1940
Loss on sale of equipment (Working note-3)	4160
Gain from flood damage (Working Note-4)	-8600
Patent amortization ($6200 - $5100)	1100
Gain on sale of investment	-1700
Increase in Accounts receivable (Working note-5)	-3700
Increase in inventory ($8900 - $12200)	-3300
Increase in accounts payable ($3000 - $5100)	2100
		-8000
Net cash provided by operating activities		7800

Cash flow from investing activities
Sale of investment ($3000 + $1700)	4700
Sale of equipment	2500
Purchase of equipment (Working Note-6)	-20400
Proceeds from flood damage to building ($30100 + $2000)	32100
Net cash provided by investing activities		18900

Cash flow from Financing activities
Payment of short term notes payable ($4000 - $2900)	-1100
Payment of dividend	-4900
Net cash used by financing activities		-6000

Net increase in cash		20700
Cash, January 1, 2020		12900
Cashm December 31, 2020		33600

Working NotesL
1) Net income = ($21500 ending retained earnings - $5700 beginning retained earnings) = $15800
2) Depreciation expense = [($11100 cost of equipment X 40%) - Difference in accumulated depreciation ($4500 - $2000) = $1940
3) Loss on sale of equipment = [($11100 - 40%) - $2500 sale value] = $4160
4) Gain from flood damage = [$29600 cost of building - $6100 depreciation - Gross insurance proceeds ($30100 + $2000)] = $8600
5) Increase in accounts receivable = [($12300 - $2900 allwance for doubtful debts) closing - ($10100 - $4400 allowance for doubtful debts) opening] = $3700
6) Purchase of Equipment = [$19900 opening + $16000 long term note - $2500 sale - $4160 loss - ($11100 - 40%) depreciation - $45200 closing] = $20400

(If there are any issues or questions, kindly let me know in comments. If the solution is to your satisfaction, a thumbs up would be appreciated. Thank You)

ekkarill92 answered 1 year ago

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