Question

Calloway Company reported the following balance sheet data for 2018 and 2017:

	2018	2017
Cash	$77,375	$22,955
Available-for-sale debt securities
(not cash equivalents)	15,500	85,000
Accounts receivable	80,000	68,250
Inventory	165,000	145,000
Prepaid insurance	1,500	2,000
Land, buildings, and equipment	1,250,000	1,125,000
Accumulated depreciation	(610,000)	(572,000)
Total assets	$979,375	$876,205
Accounts payable	$76,340	$148,670
Salaries payable	20,000	24,500
Notes payable (current)	25,000	75,000
Bonds payable	200,000	0
Common stock	300,000	300,000
Retained earnings	358,035	328,035
Total liabilities and shareholders' equity	$979,375	$876,205

Additional information for 2018:

(1.) Sold available-for-sale debt securities costing $69,500 for $74,000.

(2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000.

(3.) Issued 6% bonds payable at face value, $200,000.

(4.) Purchased new equipment for $145,000 cash.

(5.) Paid cash dividends of $20,000. This was the only change to Retained Earnings other than Net Income.

Required:

Prepare a full statement of cash flows for 2018 in good form using the indirect method.

Also, for additional question:

1. costing 69,500 and sold for 7400, which account does it affect?

2. what is the relationship between "costing" "book value" "was sold for"

3. what is face value and which account it is

4. the teacher did not give me the net income, where can i find it

Answer 1

Net Income = Ending Retained Earnings + Dividends - Beginning Retained Earnings = $ 358,035 + $ 20,000 - $ 328,035 = $ 50,000.

Calloway Company
Statement of Cash Flows
For the year 2018
Cash Flows from Operating Activities	$	$
Net Income		50,000
Adjustments to reconcile net income to net cash flows from operations
Depreciation	53,000
Gain on sale of investments	(4,500)
Gain on sale of equipment	(1,000)
Increase in accounts receivable	(11,750)
Increase in inventory	(20,000)
Decrease in prepaid insurance	500
Decrease in accounts payable	(72,330)
Decrease in salaries payable	(4,500)
Decrease in notes payable	(50,000)	(110,580)
Net cash used in Operating Activities		(60,580)
Cash Flows from Investing Activities
Proceeds from sale of Investments	74,000
Proceeds from sale of Equipment	6,000
Cash paid for acquisition of equipment	(145,000)
Net cash used in Investing Activities		(65,000)
Cash flows from Financing Activities
Proceeds from issuance of Bonds Payable	200,000
Dividends paid	(20,000)
Net cash flows from Financing Activities		180,000
Net increase ( decrease) of cash and cash equivalents		54,420
Beginning cash and cash equivalents		22,955
Ending cash and cash equivalents		77,375

1. Available for sale debt securities:

Beginning balance	85,000	Cash	74,000
Gain on sale of investments ( balancing figure)	4,500
Ending balance	15,500

2. Original cost of equipment sold : $ 20,000.

Book value : $ 5,000.

Therefore, accumulated depreciation on equipment sold : $ 20,000 - $ 5,000 = $ 15,000.

When an asset is sold, neither the cost of the asset nor the accumulated depreciation will remain the books.

Land , Buildings, Equipment:

Beginning balance	1,125,000	Asset Disposal	20,000
Cash	145,000
Ending balance	1,250,000

Accumulated Depreciation:

Asset Disposal	15,000	Beginning balance	572,000
		Depreciation expense ( balancing figure)	53,000
		Ending balance	610,000

Asset Disposal:

Land, buildings and equipment	20,000	Accumulated depreciation	15,000
Gain on sale of equipment ( balancing figure)	1,000	Cash	6,000

3. Face value is the maturity amount. or par value. If a security is issued at face value, it means that it was issued at par value: neither at a discount nor at a premium.