Question

Problem 23-2

The comparative balance sheets for Riverbed Corporation show the following information.

		December 31
		2017		2016
Cash		$33,400		$12,900
Accounts receivable		12,200		10,000
Inventory		11,800		9,100
Available-for-sale debt investments		–0–		2,900
Buildings		–0–		29,800
Equipment		45,200		20,200
Patents		5,000		6,300
		$107,600		$91,200
Allowance for doubtful accounts		$3,000		$4,600
Accumulated depreciation—equipment		2,000		4,500
Accumulated depreciation—building		–0–		5,900
Accounts payable		5,000		2,900
Dividends payable		–0–		4,900
Notes payable, short-term (nontrade)		3,000		4,000
Long-term notes payable		31,000		25,000
Common stock		43,000		33,000
Retained earnings		20,600		6,400
		$107,600		$91,200

Additional data related to 2017 are as follows.

1.		Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500.
2.		$10,000 of the long-term note payable was paid by issuing common stock.
3.		Cash dividends paid were $4,900.
4.		On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,100 taxes).
5.		Investments (available-for-sale) were sold at $1,700 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 $6,400 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).)

Answer 1

SOLUTION

Riverbed Corporation

Statement of Cash Flows

For the Year Ended December 31, 2017

	Amount ($)	Amount ($)
Cash flows from operating activities
Net income (a)		14,200
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of equipment (b)	4,100
Gain from flood damage [($30,000 + $2,100) - ($29,800 – $5,900)]	(8,200)
Depreciation expense (c)	1,900
Patent amortization ($6,300-$5,000)	1,300
Gain on sale of investments	(1,700)
Increase in Accts Rec (net) [($12,200-$3,000) - ($10,000-$4,600)]	(3,800)
Increase in inventory ($11,800- $9,100)	(2,700)
Increase in accounts payable ($5,000 - $2,900)	2,100	(7,000)
Net cash provided by operating activities (A)		7,200
Cash flows from investing activities
Sale of investments	4,600
Sale of equipment	2,500
Purchase of equipment (d)	(20,000)
Proceeds from flood damage to building	32,100
Net cash provided by investing activities (B)		19,200
Cash flows from financing activities
Payment of dividends	(4,900)
Payment of short-term note payable	(1,000)
Net cash used by financing activities (C)		(5,900)
Increase in cash (A+B+C)		20,500
Cash, January 1, 2017		12,900
Cash, December 31, 2017		33,400

(a) Net Income-

	Amount ($)
Ending retained earnings	20,600
Beginning retained earnings	(6,400)
Net income	14,200

(b) Loss on sale of equipment-

	Amount ($)
Cost	11,000
Accumulated depreciation (40% * $11,000)	(4,400)
Book value	6,600
Proceeds from sale	(2,500)
Loss on sale	4,100

(c) Depreciation expense-

	Amount ($)
Accumulated depreciation on equipment sold	4,400
Decrease in accumulated depreciation	(2,500)
Depreciation expense	1,900

(d) Purchase of equipment-

	Amount ($)
Beginning equipment balance	20,200
Cost of equipment sold	(11,000)
Remaining balance	9,200
Purchase of equipment with note	16,000
Adjusted balance	25,200
Ending equipment balance	(45,200)
Purchased with cash	20,000