Question

Kingbird Inc., a greeting card company, had the following statements prepared as of December 31, 2017.

KINGBIRD INC.

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2017 AND 2016

               

                                                                                                                           12/31/17                12/31/16

Cash                                                                                                                      $6,000                     $7,100

Accounts receivable                                                                                          61,400                     51,500

Short-term debt investments (available-for-sale)                                                     34,600                    18,000

Inventory                                                                                                             40,300                     60,200

Prepaid rent                                                                                                        4,900                          4,000

Equipment                                                                                                          152,400                  130,600

Accumulated depreciation—equipment                                                                    (34,800)                  (25,200)

Copyrights                                                                                                            45,700                    49,800

Total assets                                                                                                      $310,500                 $296,000

Accounts payable                                                                                             $46,100                     $40,300

Income taxes payable                                                                                        4,000                           6,000

Salaries and wages payable                                                                              7,900                           4,000

Short-term loans payable                                                                                  8,100                         10,000

Long-term loans payable                                                                                 59,700                       69,600

Common stock, $10 par                                                                                  100,000                     100,000

Contributed capital, common stock                                                                 30,000                     30,000

Retained earnings                                                                                              54,700                       36,100

Total liabilities & stockholders’ equity                                                          $310,500                $296,000

KINGBIRD INC.

INCOME STATEMENT

FOR THE YEAR ENDING DECEMBER 31, 2017

Sales revenue                                                                      $333,450

Cost of goods sold                                                           174,300

Gross profit                                                                       159,150

Operating expenses                                                       118,800

Operating income                                                            40,350

Interest expense                             $11,600

Gain on sale of equipment          2,000                     9,600

Income before tax                                                          30,750

Income tax expense                                                       6,150

Net income                                                                      $24,600

Additional information:

1.                            Dividends in the amount of $6,000 were declared and paid during 2017.

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 $19,800 and was 70% depreciated was sold during 2017.

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

Depreciation on Equipment sold = 70% * $19,800
Depreciation on Equipment sold = $13,860

Proceed from Sale of Equipment = Cost of Equipment Sold + Gain on Sale of Equipment - Depreciation on Equipment sold
Proceed from Sale of Equipment = $19,800 + $2,000 - $13,860
Proceed from Sale of Equipment = $7,940

Depreciation Expense = Accumulated Depreciation, 2017 + Depreciation on equipment sold - Accumulated Depreciation, 2016
Depreciation Expense = $34,800 + $13,860 - $25,200
Depreciation Expense = $23,460

Purchase of Equipment = Equipment, 2017 + Cost of Equipment sold - Equipment, 2016
Purchase of Equipment = $152,400 + $19,800 - $130,600
Purchase of Equipment = $41,600