Question

Presented below are the balance sheets of Trout Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands.

Trout Corporation

Balance Sheets

December 31, Year 1 and Year 2

                          Assets                                            Year 1                  Year 2

Cash                                                                                       $   85                        $ 127

Accounts receivable                                                                          245                           253

Less: Allowance for doubtful accounts                                (9)                             (11)

Prepaid insurance                                                                    15                              9

Inventory                                                                              225                          234

Long-term investment                                                            65                              42

Land                                                                                          160                            160

Buildings and equipment                                                     250                              300

Less: Accumulated depreciation                                         (75)                          (100)

Trademark                                                                                 25                              22

Total Assets                                                                      $ 986                          $1,036

Liabilities & Stockholders’ Equity

Accounts payable                                                                $ 50                           $   36

Salaries payable                                                                          9                                    6

Deferred tax liability                                                               15                                18

Lease liability                                                                          --                                  75

Bonds Payable                                                                        275                              125

Less: Discount                                                                       (26)                               (24)

Common Stock                                                                       250                              280

Paid-In Capital –in excess of par                                          75                                  70

Preferred Stock                                                                          -                                    105

Retained Earnings                                                               338                                345

Total Liabilities & Stockholders’ Equity                 $   986                         $ 1,036

Trout Corporation

Income Statement

For the Year Ended December 31, Year 2

Net sales revenue                                                                                                   $ 380

Investment revenue                                                                                                     12

Operating Expenses:

Cost of Goods                                                          $ 150

Salaries expense                                                            58

Depreciation expense                                                   35

Trademark amortization                                                 3

Bad debts expense                                                          8

Insurance expense                                                          20

Bond interest expense                                                 45             319

Operating Income                                                                                                    $ 73

Other Income (Expense):

Loss on building fir                                                  $(27)

Gain on sale of investments                                          4                (23)

Pre-Tax Income from Continuing Operations                                                    $ 50

Less: Income Tax Expense:                                                                                     25

Net Income                                                                                                               $ 25

Additional Information:

Shareholders were paid cash dividends of $18 million.

A building that originally cost $40 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $3 million.

Investment revenue includes Trout Corporation's $7 million share of the net income of Bass Corporation, an equity method investee.

$30 million par value of common stock was sold for $60 million, and $70 million of preferred stock was sold at par.

A long-term investment in bonds, originally purchased for $30 million, was sold for $34 million.

Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million.

The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $90 million. Annual lease payments of $15 million are paid at January 1^st of each year starting in Year 2.

$150 million of bonds were retired at maturity.

Required:

Use the EXCEL worksheet template provided. There are three tabs-

Direct Method Statement of Cash Flows (SCF)

Show your work

Cash flows from Operating Activities – CFOs Indirect Method

Answer 1

Statement of cash flow			working
Cash flows from operating activities			(a) Sales
			sales	380
Collection from customers	374.00		Add: Increase in accounts receivable	-6
From Investment revneue (12-7-4)	1		(253-11)-(245-9)
Payment to suppliers	-173		Cash receipts (collections from customers)	374
Payment of salaries	-61
Payment of Insurance	-14		(b) Cost of goods sold
Payment of Interest	-47		Cost of good sold	150
Payment of Income tax	(22.00)		Add: ending Inventory	234
			Goods avialable for sale	384
			Less: Beginning Inventory	225
		58.00	Purchases	159
Net cash from operating activities		58.00	dedcut: ending accounts payable	36
				123
Cash flows from investing activities			Add: Opening Accounts payable	50
Payment of lease	-15		Cash purchases (payments for merchandise)	173
Sale of long term investment	34
Sale of MACHINE Copmponents	3	22	(c) Income taxes
Net cash used investing activities		22.00	Income tax expense	25
Cash flows from financing activities			Deduct ending income tax payable	0
Borrowings from Bonds Payable				25
Retirement of Bonds Payable	(150.00)		Add beginning income tax payable	0
Issue of Preferred stock	70.00			25
			Less: ending DTL	18
Issue of Common stock	60		add: beginning DTL	15
Payment of Dividends	-18	(38.00)	Payment of income tax	22
Net cash from financing activities		(38.00)
Net Increase in cash and cash equivalents		42.00	d) Payment of salaries
			Salaries expenses	58
Cash and cash equivalents at beginning of period		85.00	Ded ending salaries payable	6
Ending Balance		127.00		52
			Add: beginning salaries payable	9
			d) Payment of salaries	61
Statement of cash flow			e) Payment of Insurance
Cash flows from operating activities			Insurance expenses	20
			Add: ending prepaid insurance	9
Net income		25.00		29
Adjustment to reconcile net income to cash basis			Less: Beginning prepaid imsurance	15
Depreciation expenses	35		e) Payment of Insurance	14
Trade mark mortization	3
Bad debt expenses	8		f) Payment of Interest
Gain on sale of Investment	-4		Interest expenses	45
Loss on Building fire	27		Ded ending interest payable	0
Increase in Accounts Receivable	-6			45
Increase in mercandise inventory	-9		Add: beginning interest payable	0
Decraese in prepaid expenses	6.00			45
Decrease in Accounts payable	(14.00)		Add: ending discount on bonds pyable	24
Decraese in salaries payable	(3.00)			21
Increase in Deferred tax liab ility	3.00		Add: beginning discount on bonds	26
Decrease in Bonds discount	2.00		f) Payment of Interest	47
Payment of lease	-15	33.00
Net cash from operating activities		58.00	From Investment revneue
			From Investment revneue (12-7)	5
			Add: beginning revenue	0
				5
			Less: ending revneue receivable	0
				5