Question

The controller in your firm has put you in charge of preparing the Statement of Cash Flows for the year ended December 31, 2017.  You gather the following data.  Your firm uses the indirect method.

	Dec 31 2017	Dec 31 2016
Cash	99,435	110,700
AR	424,600	380,900
Inventory	635,740	576,475
Prepaid Expenses	20,000	12,000
Investment in Subsidary	200,000	0
Cash surrender value of Life Insurance 16,460	16,460	14,850
Land	100,000	100,000
Buildings	525,000	400,000
Equipment	381,000	290,000
Patents	86,000	70,000
Trademarks	25,000	35,000
Bond Discount & Issue Costs	1,165	6,075
TOTAL DEBITS	2,514,400	1,996,000
AP	534,000	508,000
Income Tax Payable	68,000	34,500
Salaries & Wages Payable	73,500	12,900
Allowance for doubtful accounts	25,000	23,000
Accumalated Depriciation- Buildings	248,000	230,000
Accumalated Depriciation- Equipment	160,000	103,000
Long Term Notes Payable	75,000	75,000
Bonds Payable	400,000	300,000
Premium on Bonds Payable	7,762	0
Common Stock	150,000	125,000
PD in Cap Excess of Par- Common Stock	568,000	418,000
Retained Earnings	205,138	166,600
TOTAL CREDITS	2,514,400	1,996,000

Your working papers from the audit contain the following information:

On November 1, 2017, 25,000 shares of $1 par stock were sold for $175,000

A patent was purchased for $31,000

During the year, equipment that had a cost basis of $26,400 and on which there was a accumilated depriciation of $5,800 was sold for $15,000. No other plant assets were sold during the year

The 10%, $300,000 40 year bonds were dated and issued on Jan 2, 2004. Interest was payable on June 30, and December 31. They were sold originally at 97. these bonds were retired at 101 plus accured interest on May 31, 2017

The 6%, $400,000 20 year bonds were dated January 1, 2017 and were sold on may 31 at 102 plus accured interest. Interest is payable semiannually on June 30 and Dec 31. Expense of Issuance was $1,200

You aquired 60% control in another company on Jan 2, 2017 for $146,000. The Income statement of that company for 2017 shows a net income of $90,000

Extrodinary repairs to buildings of $12,600 were charged to Accumilated Depriciation- Buildings

Interest paid in 2017 was $31,000 and Income taxes paid were $38,000

Net Income for the year totaled $76,538

Answer 1

Solution:

Details	Amount	Working
Cash flow from Operating Activities	$153,945
Net income	$76,538
Depreciation on Building (W.N. 4)	$30,600	Working note no 4
Depreciation on Equipment?(WN 6)	$62,800	Working note no 6
Loss on sale of equipment?(WN 6)	$5,600	Working note no 6
Income tax provision for 2017	$71,500
Trademark w/off	$10,000	(35000-25000)
Patent Written off	$15,000	Working note no 2
Net income from Subsidary	-$54,000	Working note no 3
Increase in accounts payable	$26,000
Increase in salary payable	$60,600
Increase in Doubtful allowance	$2,000
Increase in accounts receivable	-$43,700
Increase in Inventory	-$59,265
Increase in Prepaid Expenses	-$8,000
Taxes Paid	-$38,000
Extraordinary Repairs	-$12,600	Working note no 4
Amortization of bond premium	$3,962
Amortization of bonds discount	$4,910
Cash Flow from Investing activities	-$406,010
Patent Purchased	-$31,000
Investment in Subsidary	-$146,000
Building Purchased	-$125,000	Working note no 4
Held To Maturity Securities purchased	-$1,610
Sale oF Equipment	$15,000	Working note no 6
Purchase Of Equipment?	-$117,400	Working note no 6
Cash flow from Financing Activities	$240,800
Issue of stock	$25,000	Working note no 1
Premium on issue of stock	$150,000	Working note no 1
Dividend Paid	-$38,000	Working note no 8
Bonds retired	-$303,000
Bons issued	$406,800
Changes in cash and cash equivalents	-$11,265
Cash flow at the beginning of 2017	$110,700
Cash flow at the end of 2017	$99,435

?

Working notes:

1) Common stock:

Date	Particulars	Amt ($)	Date	Particulars	Amt ($)
31/12/17	To balance c/d	$150,000	01/01/17	By Balance b/d	$125,000
			01/11/17	By Cash (25000*1)	$25,000
		$150,000			$150,000

Paid in Capital in excess of par common stock

Date	Particulars	Amt ($)	Date	Particulars	Amt ($)
31/12/17	To balance c/d	$568,000	01/01/17	By Balance b/d	$418,000
			01/11/17	By Cash (175000-25000*1)	$150,000
		$568,000			$568,000

?

?

2) Patent

Date	Particulars	Amt ($)	Date	Particulars	Amt ($)
01/01/17	To Balance b/d	$70,000	31/12/17	By P& L A/c	$15,000
	To Cash	$31,000	31/12/17	By Balance c/d	$86,000
		$101,000			$101,000

?

3) Investment in Subsidary

01/01/17	To Balance b/d	$0	31/12/17	By Balance c/d	$200,000
02/01/17	To Cash	$146,000
31/12/17	To Dividend - P&L (90000*60%)	$54,000
		$200,000			$200,000

?

4) Building

01/01/2017	To Balance b/d	$400,000	31/12/17	By Balance c/d	$525,000
	To Cash A/C (Bf)	$125,000
		$525,000			$525,000

Accumulated depreciation

	To Extraordinary repairs-Cash	$12,600	01/01/2017	By Balance b/d	$230,000
31/12/17	To Balance c/d	$248,000		By P&L A/C -Provision (B F)	$30,600
		$260,600			$260,600

5) Income Tax Payable

31/12/17	To Cash A/C?	$38,000	01/01/2017	By Balance b/d	$34,500
31/12/17	To Balance c/d	$68,000	31/12/17	By P&L A/C -Provision (B F)	$71,500
		$106,000			$106,000

?

6) Equipment

01/01/2017	To Balance b/d	$290,000	31/12/17	By Cash A/C	$15,000
31/12/17	To Cash A/C (Bf)	$117,400	31/12/17	By Accum Dep A/C	$5,800
			31/12/17	By P& L-Loss on sale	$5,600
			31/12/17	By Balance c/d	$381,000
		$407,400			$407,400

?

Accumlated Depreciation-Equipment

31/12/17	To Equipment A/c	$5,800	01/01/2017	By Balance b/d	$103,000
31/12/17	To Balance c/d	$160,000	31/12/17	By P&L A/C -Provision (B F)	$62,800
		$165,800			$165,800

?

?

7) Bond Payable

			01/01/2017	By Balance b/d	$300,000
31/12/2017	To Balance c/d	$400,000

?

Premium On Bond Payable

			01/01/2017	By Balance b/d	$0
31/12/2017	To Balance c/d	$7,762

?

Bond Discount & Issue Cost

01/01/2017	To Balance b/d	$6,075
			31/12/2017	By Balance c/d	$1,165

?

8) Retained Earnings

31/12/2017	To Dividend-Cash (B.F.)	$38,000	01/01/2017	By Balance b/d	$166,600
31/12/2017	To Balance c/d	$205,138	31/12/2017	By P& L A/C	$76,538
		$243,138			$243,138

?

?

?

?

?