Question

Wildhorse Inc., a greeting card company, had the following statements prepared as of December 31, 2020.

WILDHORSE INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2020 AND 2019
		12/31/20			12/31/19
Cash		$6,100			$6,900
Accounts receivable		61,900			50,600
Short-term debt investments (available-for-sale)		34,700			18,100
Inventory		40,000			59,400
Prepaid rent		5,000			4,000
Equipment		152,800			128,900
Accumulated depreciation—equipment		(34,900	)		(25,100	)
Copyrights		46,100			50,400
Total assets		$311,700			$293,200
Accounts payable		$45,800			$40,100
Income taxes payable		3,900			6,000
Salaries and wages payable		8,100			4,000
Short-term loans payable		8,100			10,100
Long-term loans payable		59,900			69,400
Common stock, $10 par		100,000			100,000
Contributed capital, common stock		30,000			30,000
Retained earnings		55,900			33,600
Total liabilities & stockholders’ equity		$311,700			$293,200

WILDHORSE INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2020
Sales revenue				$339,275
Cost of goods sold				174,600
Gross profit				164,675
Operating expenses				120,100
Operating income				44,575
Interest expense		$11,200
Gain on sale of equipment		2,000		9,200
Income before tax				35,375
Income tax expense				7,075
Net income				$28,300

Additional information:

1.		Dividends in the amount of $6,000 were declared and paid during 2020.
2.		Depreciation expense and amortization expense are included in operating expenses.
3.		No unrealized gains or losses have occurred on the investments during the year.
4.		Equipment that had a cost of $20,100 and was 70% depreciated was sold during 2020.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Solution:

WILDHORSE INC. Satement of cash flows for the year ended December 31,2020
Cash flow from operating activites:
Net income		$28,300
Adjustments to reconcile net income to Net cash provided:
Depreciation expenses	$23,870
Amortization expenses	$4,300
Gain on sale of equipment	(2,000)
Increase in accounts receivable	(11,300)
Decrease in invnetory	$19,400
Increase in prepaid rent	($1,000)
Increase in accounts payable	$5,700
Decrease in income taxes payable	($2,100)
Increase in salaries and wages payable	$4,100	$40,970
		$69,270
Net cash provided by operating activites
Cash flow from investing activites:
Purchase of short term debt investments	(16,600)
Sale of equipment	$8,030
Purchase of equipment	($44,000)
Net cash used in investing activites		($52,570)
Cash flow from financing activites:
Principal payment of short term loan	($2,000)
Principal payment of long term loan	($9,500)
Payment of dividend	($6,000)
Net cash used in financing activites		($17,500)
Net decrease in cash		($800)
Add: Cash balance at the beginning of year		$6,900
Cash balance at the end of the year		$6,100

Working:

Depreciation expenses:

Accumulated Depreciation on Equipment sold = 20,100*70%

=$14,070

Depreciation expenses= Accumulated Depreciation ending - Accumulated Depreciation beginning + Accumulated Depreciation on Equipment sold

=$34,900 -$25,100 +14,070

=$23,870

2)

Equipment sold :

Book value of Equipment Sold on the date of Sale = 20,100 - (20,100*70%)

=$6,030

Sale Value of Equipment = Gain on Sale of Equipment + Book Value of Equipment

=$2,000 +$6,030

=$8,030

3)

Equipment purchased:

Equipment Purchased = Ending Equipment - Beginning Equipment + Equipment Sold

=152,800 - 128,900 +20,100

=$44,000

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