Question

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.

METAGROBOLIZE INDUSTRIES Comparative Balance Sheets December 31, 2018 and 2017 ($ in 000s)
	2018				2017
Assets
Cash	$	460			$	190
Accounts receivable		510				270
Inventory		660				390
Land		700				605
Building		800				800
Less: Accumulated depreciation		(300	)			(275	)
Equipment		2,900				2,630
Less: Accumulated depreciation		(493	)			(460	)
Patent		1,800				2,100
	$	7,037			$	6,250
Liabilities
Accounts payable	$	760			$	560
Accrued expenses payable		230				210
Lease liability—land		130				0
Shareholders' Equity
Common stock		2,620				2,500
Paid-in capital—excess of par		600				530
Retained earnings		2,697				2,450
	$	7,037			$	6,250

METAGROBOLIZE INDUSTRIES Income Statement For the Year Ended December 31, 2018 ($ in 000s)
Revenues
Sales revenue	$	3,061
Gain on sale of land		70		$	3,131
Expenses
Cost of goods sold	$	960
Depreciation expense—building		25
Depreciation expense—equipment		384
Loss on sale of equipment		20
Amortization of patent		300
Operating expenses	$	600			2,289
Net income				$	842

Additional information from the accounting records:

Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.

During 2018, equipment with a cost of $390,000 (90% depreciated) was sold.

The statement of shareholders’ equity reveals reductions of $190,000 and $405,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows for Metagrobolize Industries using the indirect method. (Enter your answers in thousands. (i.e., 10,000 should be entered as 10).) Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Solution:

I have provided the cash flow statement by using the data given in the question.

There is one mistake in the data given in the question…. Detail about Sale of Land is not given. Only given ins gain from sale of land… what is the value of Land which is sold and what is the value of land which is purchased is missing. If you can provide me this information the answer will be matched.

Metagrobolize Industrie
Cash Flow Statement (Indirect Method)
Cash Flow from Operating Activities:		$$	$$
Net Income		$842
Adjustments to convert net income to cash basis
+	Depreciation Expenses (Non cash item) (25+384)	$409
+	Amortization of Patent (Non cash item)	$300
+	Loss on Sale of Equipment	$20
-	Gain on Sale of Land	-$70
-	Increase in Accounts Receivable (510 - 270)	-$240
-	Increase in Inventories (660 - 390)	-$270
+	Increase in Accounts Payable (760 -560)	$200
+	Increase in Accrued Expenses Payable (230 - 210)	$20
Net Cash Provided by Operative Activities			$1,211
Cash Flow from Investing Activities:
-	Purchase of Equipment (Refer Note 2)	-$660
-	Purchase of Land (700-605+70)	-$165
+	Sale of Equipment	$19
Net Cash used by Investing Activities			-$806
Cash Flow from Financing Activities:
-	Repayment of Lease	-$20
+	Proceeds from Issuance of Common Stock (2620-2500+600-530)	$190
+	Lease Borrowing (130 + 20 paid in beginning)	$150
-	Cash Dividend Paid	-$405
Net Cash used by Financing Activities			-$85
Net Increase/(Decrease) in Cash and Cash Equivalents			$320
Cash and Cash Equivalents at the beginning of the year			$190
Cash and Cash Equivalents at the end of the year			$510

Note 1 –

Sales Proceeds from Equipment
Equipment Cost	$390,000
Less: Accumulated Depreciation (90%*390,000)	$351,000
Net Book Value of Equipment	$39,000
Less: Loss on Sale of Equipment (from Income Statement)	($20,000)
Net Cash Proceeds from Sale of Equipment	$19,000

Note 2

Purchase of Equipment
Ending balance	$2,900
Plus: Cost of Equipment Sold	$390
Less: Beginning Balance	($2,630)
Equipment Purchased in Cash	$660

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you