Question

In: Accounting

The net changes in the balance sheet accounts of KMD, Inc. for the year 2018 are...

The net changes in the balance sheet accounts of KMD, Inc. for the year 2018 are shown below:

                  Account                                                                          Debit                         Credit    

Cash                                                                                              $   130,000

Accounts receivable                                                                                                      $     14,000

Allowance for doubtful accounts                                                           4,000                                

Inventory                                                                                              80,000

Prepaid expenses                                                                                10,000

Held-to-Maturity Securities                                                                                                 100,000

Available-for-Sale Securities                                                             300,000

Equipment                                                                                         700,000                                

Accumulated depreciation:

         Equipment                                                                                            0                               0

Goodwill                                                                                                                                10,000

Accounts payable                                                                                                               105,000

Notes payable                                                                                                                     325,000

Common stock                                                                                                                    100,000

Additional paid-in capital—common                                                                                   120,000

Retained earnings                                                                        _________                    450,000

                                                                                                      $1,224,000               $1,224,000

Additional information:

    1. Net income for 2018 was $690,000

    2. cash dividends declared/paid $240,000

    3. Equipment costing $400,000 with a book value of $150,000 was sold for $150,000

    4. Held-to-Maturity (HTM) stock sold for $135,000. There were no other HTM transactions

    5. 10,000 Shares of Common Stock were issued for $22/share.

Instructions

Prepare a statement of cash flows (indirect method). Ignore tax effects. Use the format provided on next page. Please attach your supporting calculations or spreadsheets.

Solutions

Expert Solution

KMD, Inc.
CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31,2018

Cash flow from operating activity
Net Income 690000

Adjustment to reconcile net loss to net cash flow from operating activity
Depreciation expense [working 1] 250000
Amortization of goodwill 10000
Gain on sale of Held to maturity securities [working 2] -35000
Decrease in net accounts receivable [14000-4000 allowance ] 10000
Increase in Inventory -80000
Increase in prepaid expense -10000
Increase in accounts payable 105000
250000

Net cash flow from operating activity [A]

 940000

Cash flow from investing activity
purchase of available for sale securities -300000
sale of held to maturity securities 135000
sale of equipment 150000
Purchase of equipment -1100000

Net cash flow from investing activity [B]

 -1115000

Net cash flow from financing activity
Issue of note payable 325000
issue of common stock (10000*22) 220000
cash dividend paid -240000

Net cash flow from financing activity [C]

 305000

Net increase/(decrease)in cash during the year [A+B+C]

 130000

Working :

1)Accumulated depreciation on equipment sold = Cost -Book value

                                              = 400000 - 150000

                                               =250000

since there is no increase or decrease in accumulated depreciation ,it means Depreciation expense for current year(Increase) is equals to Accumulated depreciation on equipment sold (decrease) resulting in no effect.

2)Gain on sale of Held to maturity securities = sale value -decrease in HTM

                                               = 135000 -100000

                                               = 35000

3)Net increase in equipment = 700000

Net increase in equipment =Total purchase -Total sale at cost

700000 = P -400000

Purchase = 700000+400000 = 1100000

ekkarill92 answered 1 year ago
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