Question

Sage Company had the following information available at the end of 2017.

SAGECOMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016
		2017			2016
Cash		$9,950			$3,990
Accounts receivable		20,680			12,890
Short-term investments		22,180			29,970
Inventory		42,300			35,140
Prepaid rent		3,000			11,880
Prepaid insurance		2,080			91
Supplies		1,010			74
Land		124,180			176,410
Buildings		350,770			350,770
Accumulated depreciation—buildings		(104,490	)		(86,770	)
Equipment		519,790			398,650
Accumulated depreciation—equipment		(129,460	)		(112,570	)
Patents		44,710			49,580
Total assets		$906,700			$870,105
Accounts payable		$21,890			$31,870
Income taxes payable		5,040			4,020
Salaries and wages payable		5,000			3,020
Short-term notes payable		10,100			10,100
Long-term notes payable		59,520			70,530
Bonds payable		396,250			396,250
Premium on bonds payable		22,650			25,755
Common stock		238,820			221,880
Paid-in capital in excess of par—common stock		25,040			17,450
Retained earnings		122,390			89,230
Total liabilities and stockholders’ equity		$906,700			$870,105

SAGE COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue					$1,166,560
Cost of goods sold					749,970
					416,590
Gross margin
Operating expenses
Selling expenses		$79,290
Administrative expenses		156,820
Depreciation/Amortization expense		39,480
Total operating expenses					275,590
Income from operations					141,000
Other revenues/expenses
Gain on sale of land		8,060
Gain on sale of short-term investment		4,030
Dividend revenue		2,420
Interest expense		(52,030	)		(37,520	)
Income before taxes					103,480
Income tax expense					39,470
Net income					64,010
Dividends to common stockholders					(30,850	)
To retained earnings					$33,160

Prepare a statement of cash flows for Sage Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale.

Answer 1

Sage Company

Comparative Balance Sheet

Assets 2017 2016 Change in Account Balance Increase/Decrease Current Assets Cash $9,950 $3,990 $5,960 Increase Accounts Receivable 20,680 12,890 7,790 Increase Debt securities (Short-term investments) 22,180 29,970 7,790 Decrease Inventory 42,300 35,140 7,160 Increase Prepaid Expenses Prepaid rent 3,000 11,880 8,880 Decrease Prepaid insurance 2,080 91 1,989 Increase Property, plant, equipmnet Supplies 1,010 74 936 Increase Land 124,180 176,410 52,230 Decrease Buildings 350,770 350,770 - Accumulated depriciation- buildings (104,490) (86,770) 17,720 Increase Equipment 519,790 398,650 121,140 Increase Accumulated depriciation - equipment (129,460) (112,570) 16,890 Increase Patents 44,710 49,580 4,870 Decrease Total Assets $906,700 $870,105 Current Liabilities Accounts payable $21,890 $31,870 9,980 Decrease Income tax payable 5,040 4,020 1.020 Increase Salaries and wages payable 5,000 3,020 1,980 Increase Short term notes payable 10,100 10,100 - Long term liabilities Long-term notes payable 59,520 70,530 11,280 Decrease Bonds payable 396,250 396,250 - Premium on bonds payable 22,650 25,755 3,105 Decrease Stockholder's equity Common stock 238,820 221,880 16,940 Increase Paid-in capital in excess of par - common stock 25,040 17,450 7,590 Increase Retained earnings 122,390 89,230 33,160 Increase Total liabilities and stockholder's equity $906,700 $870,105

Cash receipts from customers

Renveues from sales	$1,166,560
Less: Increase in accounts receivables	7,790
Cash receipts from customers	$1,158,770

Cash payments to suppliers

Cost of goods sold	$749,970
Add: Increase in inventory	7,160
Purchases	$757,130
Add: Decrease in accounts payable	9,980
Cash payment to suppliers	$767,110

Cash payment to operating expenses

Operating expense excluidng depriciation	$236,110
Deduct: Decrease in prepaid expenses	6891
Cash payment to operating expenses	$229,219

Cash payment for interest : $37,520

Cash payment for income taxes : $38,450

Sage Company

Statement of Cash Flows

For the Year Ended December 31, 2017

Cash flows from operating activities Cash receipts from customers $1,158,770 Less: Cash Payments To suppliers $767,110 For operating expenses 229,219 For income taxes 38,450 For interest expense 37,520 1,072,299 Net cash provided by operating activities 86,471 Cash flows from investing activities Patents ($4,870) Debt securities (available-for-sale) (7,790) Net cash used by investing activities (12,660) Cash flows from financing activities Short-term notes payable Long-term notes payable ($11,280) Premium on bonds payable (3,105) Paid-in capital in excess of par - common stock 7,590 Payment of dividends (30,850) Net cash used by financing activities (37,645) Net increase in cash 36,166