Question

Problem 23-2 The comparative balance sheets for Monty Corporation show the following information. December 31 2017 2016 Cash $33,700 $13,100 Accounts receivable 12,200 9,900 Inventory 12,000 8,900 Available-for-sale debt investments –0– 3,000 Buildings –0– 30,000 Equipment 45,200 19,800 Patents 5,100 6,200 $108,200 $90,900 Allowance for doubtful accounts $2,900 $4,500 Accumulated depreciation—equipment 2,000 4,500 Accumulated depreciation—building –0– 5,900 Accounts payable 5,100 3,000 Dividends payable –0– 5,000 Notes payable, short-term (nontrade) 3,100 4,100 Long-term notes payable 31,000 25,000 Common stock 43,000 33,000 Retained earnings 21,100 5,900 $108,200 $90,900 Additional data related to 2017 are as follows. 1. Equipment that had cost $10,900 and was 40% depreciated at time of disposal was sold for $2,400. 2. $10,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $5,000. 4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $29,800 (net of $2,000 taxes). 5. Investments (available-for-sale) were sold at $1,600 above their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,500 were paid in cash. Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) MONTY CORPORATION Statement of Cash Flows $ Adjustments to reconcile net income to $ $ Supplemental disclosures of cash flow information: $ $ $ $ Click if you would like to Show Work for this question: Open Show Work Link to Text Link to Text Question Attempts: 0 of 3 used Save for later Submit Answer

Answer 1

Monty Corporation

Statement of Cash Flows

For the year ended December 31, 2017

	$	$
Cash Flows from Operating Activities
Net Income ( Schedule 1)		15,200
Adjustments to reconcile net income to net cash from operations
Depreciation ( Schedule 2)	1,860
Amortization ( Patents)	1,100
Gain of insurance compensation ( Schedule 3)	(7,700)
Loss on sale of equipment	4,140
Gain on sale of investments	(1,600)
Interest Expense	2,000
Increase in accounts receivable	(3,900)
Increase in inventory	(3,100)
Increase in accounts payable	2,100	(5,100)
Operating cash flows before extraordinary item		10,100
Extraordinary item : Insurance Proceeds		31,800
Net cash flows from operating activities		41,900
Cash flows from Investing Activities
Proceeds from sale of equipment	2,400
Proceeds from sale of investments	4,600
Cash paid for acquisition of equipment	(20,300)
Net cash used in Investing Activities		(13,300)
Cash flows from Financing Activities
Retirement of notes payable	(1,000)
Cash dividends	(5,000)
Interest paid	(2,000)
Net cash used in Financing Activities		(8,000)
Net increase in cash and cash equivalents		20,600
Cash and Cash Equivalents, beginning of period		13,100
Cash and Cash Equivalents, end of period		33,700
Schedule of non cash activities
Issuance of common stock to retire long term debt		10,000
Issuance of long term debt for acquisition of equipment		16,000

Schedule 1:

Retained Earnings, Ending	$ 21,100
Less: Retained Earnings, Beginning	5,900
Net Income earned during the period	$ 15,200

Schedule 2:

Accumulated Depreciation, Beginning	$ 4,500
Less: Accumulated depreciation on asset sold ( $ 10,900 x 40%)	(4,360)
Add: Depreciation expense for the year	1,860
Accumulated Depreciation, Ending	2,000

Schedule 3:

Gross insurance compensation proceeds	$ 31,800
Less Book Value of Building ( $ 30,000 - $ 5,900)	(24,100)
Gain on insurance compensation	$ 7,000