Question

In: Accounting

Statement of Cash Flows (Indirect Method) Dair Company's income statement and comparative balance sheets follow. DAIR...

Statement of Cash Flows (Indirect Method)
Dair Company's income statement and comparative balance sheets follow.

DAIR COMPANY
Income Statement
For Year Ended December 31,2011
Sales $ 700,000
Cost of goods sold $ 440,000
Wages and other operating expenses 95,000
Depreciation expense 21,000
Amortization expense 7,000
Interest expense 6,000
Income tax expense 37,000
Loss on bond retirement 4,000 610,000
Net income $90,000
DAIR COMPANY
Balance Sheets
Dec. 31, 2011 Dec. 31, 2010
Assets
Cash $ 33,000 $ 20,000
Accounts receivable 53,000 48,000
Inventory 103,000 113,000
Prepaid expenses 12,000 8,000
Plant assets 348,000 329,000
Accumulated depreciation (86,000) (84,000)
Intangible assets 43,000 50,000
Total assets $ 506,000 $ 484,000
Liabilities and Stockholders' Equity
Accounts payable $ 32,000 $ 26,000
Interest payable 4,000 7,000
Income tax payable 3,000 8,000
Bonds payable 55,000 119,000
Common stock 252,000 228,000
Retained earnings 160,000 96,000
Total liabilities and equity $ 506,000 $ 484,000

During 2011, the company sold for $17,000 cash old equipment that had cost $36,000 and had $19,000 accumulated depreciation. Also in 2011, new equipment worth $55,000 was acquired in exchange for $55,000 of bonds payable, and bonds payable of $119,000 were retired for cash at a loss. A $26,000 cash dividend was declared and paid in 2011. Any stock issuances were for cash.

(a) Compute the change in cash that occurred in 2011.

Cash, December 31, 2011 33,000
Cash, December 31, 2010 20,000
Cash increase during 2011 13,000

(b) Prepare a 2011 statement of cash flows using the indirect method.

Use negative signs with answers to show a decrease in cash.

DAIR COMPANY
STATEMENT OF CASH FLOWS
FOR YEAR ENDED DECEMBER 31, 2011
Net Cash Flow from Operating Activities
Net Income Answer
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation Answer
Amortization expense Answer
Loss on Bond Retirement Answer
Accounts Receivable Increase Answer
Inventory Decrease Answer
Prepaid Expenses Increase Answer
Accounts Payable Increase Answer
Interest Payable Decrease Answer
Income Tax Payable Decrease Answer
Net Cash Provided by Operating Activities Answer
Cash Flows from Investing Activities
Sale of Equipment Answer
Cash Flows from Financing Activities
Retirement of Bonds Payable Answer
Issuance of Common Stock Answer
Payment of Dividends Answer
Net Cash Used by Financing Activities Answer
Net Increase in Cash Answer
Cash at Beginning of Year Answer
Cash at End of Year Answer



(c) Prepare separate schedules showing (1) cash paid for interest and for income taxes and (2) noncash investing and financing transactions.

(1) Supplemental Cash Flow Disclosures
Cash Paid for Interest Answer
Cash Paid for Income Taxes Answer
(2) Schedule of Noncash Investing and Financing Activities
Issuance of Bonds Payable to Acquire Equipment Answer

Solutions

Expert Solution

Answer b.

Answer c.

Supplemental cash flow disclosures:

Cash paid for interest = Beginning interest payable + Interest expense - Ending interest payable
Cash paid for interest = $7,000 + $6,000 - $4,000
Cash paid for interest = $9,000

Cash paid for income taxes = Beginning income tax payable + Income tax expense - Ending income tax payable
Cash paid for income taxes = $8,000 + $37,000 - $3,000
Cash paid for income taxes = $42,000

Schedule of noncash investing and financing activities:

Issuance of bonds payable to acquire equipment = $55,000


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