Question

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Quiz #10 Husky Company’s 2016 income statement and comparative balance sheets as of December 31 of...

Quiz #10

Husky Company’s 2016 income statement and comparative balance sheets as of December 31 of 2016 and 2015 are shown below:

HUSKY COMPANY

Income Statement

For Year Ended December 31, 2016

Sales revenue…………………………………………………... $1,270,000

Cost of goods sold……………………………………………... $860,000

Wages expense………………………………………………… 172,000

Insurance expense…………………………………………….. 16,000

Depreciation expense………………………………………….. 34,000

Interest expense……………………………………………….. 18,000

Income tax expense…………………………………………… 58,000 1,158,000

Net income…………………………………………………….. $ 112,000

HUSKY COMPANY

Balance Sheets

Dec. 31, 2016 Dec. 31, 2015

Assets

Cash…………………………………………………………….. $ 22,000 $ 10,000

Accounts receivable……………………………………………. 82,000 64,000

Inventory……………………………………………………….. 180,000 120,000

Prepaid insurance……………………………………………..... 10,000 14,000

Plant assets…………………………………………………….. 500,000 390,000

Accumulated depreciation……………………………………... (136,000) (102,000)

Total assets……………………………………………………... $658,000 $496,000

Liabilities and Stockholders’ Equity

Accounts payable………………………………………………. $ 14,000 $ 20,000

Wages payable…………………………………………………. 18,000 12,000

Income tax payable…………………………………………….. 14,000 16,000

Bonds payable…………………………………………………. 260,000 150,000

Common stock…………………………………………………. 180,000 180,000

Retained earnings………………………………………………. 172,000 118,000

Total liabilities and stockholders’ equity………………………. $658,000 $496,000

Cash dividends of $58,000 were declared and paid during 2016. Plant assets were purchased for cash. Bonds were issued for cash. Bond interest is paid semiannually on June 30 and December 31. Accounts payable relate to merchandise purchases.

Required

Prepare the operating section of cash flow using the indirect method. Interest expense or income is always operating.

Quiz #11

Using Quiz # 10 above - prepare the entire cash flow statement (operating, investing, and financing) using the indirect method

Solutions

Expert Solution

Operating section of cash flow - indirect method

Since the net profit or loss reported on the cash flow statement already accounts for the interest expenses paid during a given period, the amount paid will not appear as a separate line item on the cash flow statement

cash flow from operating activities:
net income 112000
adjustments to reconcile to net income
depreciation 34000
increase in accounts receivable -18000
increase in inventory -60000
decrease in prepaid assets 4000
decrease in accounts payable -6000
increase in wages payable 6000
decrease in income tax payable -2000
net cash flow from operating activities 70000
Husky Company
Cash flow statement - indirect method
For the period Dec.31, 2016 (amounts in $)
cash flow from operating activities:
net income 112000
adjustments to reconcile to net income
depreciation 34000
increase in accounts receivable -18000
increase in inventory -60000
decrease in prepaid assets 4000
decrease in accounts payable -6000
increase in wages payable 6000
decrease in income tax payable -2000
net cash flow from operating activities 70000
cash flow from investing activities:
purchase of plant assets -110000
net cash flow from investing activities -110000
cash flow from financing activities:
issuance of bonds 110000
dividends payable -58000
net cash flow from financing activities 52000
net change in cash flow 12000
cash balance at the beginning 10000
cash balance at the end 22000

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