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In: Accounting

QUESTION ONE The Statements of Financial Position for Lexington Limited as at 30 June 2019 and...

QUESTION ONE

The Statements of Financial Position for Lexington Limited as at 30 June 2019 and 30 June 2020 are provided below:

Lexington Ltd

Statement of Financial Position as at 30 June

2020

2019

Assets

$

$

Cash at bank

64,580

38,400

Accounts Receivable

82,800

35,000

Inventory

112,500

102,850

Prepaid Advertising

14,400

14,000

Machinery

310,000

282,500

Less: Accumulated Depreciation

(50,000)

(52,000)

Total Assets

$534,280

$420,750

Liabilities

Accounts Payable

157,000

59,300

Dividends payable

15,000

-

Wages payable

20,700

25,000

Loan

125,000

130,000

Total Liabilities

$317,700

$214,300

Shareholders' Equity

Share Capital

126,000

101,000

Retained Earnings

90,580

105,450

Total Shareholders' Equity

$216,580

$206,450

Total Liabilities and Shareholders' Equity

$534,280

$420,750

Question One continued on the next page

QUESTION ONE (CONTINUED)

The Statement of Financial Performance for Lexington Limited for the financial year ended 30 June 2020 is provided below:

Lexington Ltd

Statement of Financial Performance for the year ended 30 June 2020

$

Sales

272,000

Less:

   Cost of sales

145,460

   Advertising Expense

15,000

   Wages Expense

20,000

   Other Operating Expenses

73,910

   Loss on sale of Machine

7,500

Total Expenses

261,870

Profit

$10,130

Additional Information:

  1. An interim dividend was declared and paid. A final dividend of $15,000 was declared.
  2. New machinery costing $85,000 was purchased for cash during the year.
  3. A machine having an original cost of $57,500 was sold for cash during the year. Accumulated depreciation of the machine sold was $48,500 at the point of sale.
  4. Other Operating Expenses include depreciation expense of $46,500.
  5. Additional shares were issued for cash during the year.
  6. All sales and purchases are on credit throughout the year ending 30 June 2020.
  7. Accounts payable reflects inventory purchases on credit from suppliers.

REQUIRED:

  1. Prepare a fully classified Statement of Cash Flows for Lexington Ltd for the year ended 30 June 2020 using the direct method. Show all workings.

      (b) Compare and contrast the information provided from a Statement of Cash Flows as compared to information contained in the Statement of Financial Position and Statement of Financial Performance. (word limit 150).

Solutions

Expert Solution

CASH FLOW STATEMENT -YEAR ENDING JUNE, 2020
CASH FLOW FROM OPERATING ACTIVITIES
a Profit $10,130
Adjustment to reconcile net income
to net cash provided by operating activities
b1 Loss on Sale of Machine $7,500
b2 Depreciation expense $46,500
(Increase)/Decrease in current assets
c Increase in Accounts Receivable -$47,800 (82800-35000
d Increase in Inventory -$9,650 (112500-102850)
e Increase in Prepaid Advertising -$400 (14400-14000)
Increase/(Decrease) in current liabilities
f Increase in Accounts Payable $97,700 (157000-59300)
g Decrease in Wages Payable -$4,300 (25000-20700)
A=a+b1+b2+c+d+e+f+g NET CASH PROVIDED BY OPERATING ACTIVITIES $99,680
CASH FLOW FROM INVESTING ACTIVITIES
Book Value of Machine Sold=57500-48500 $9,000
Loss on Sale of Machine $7,500
Cash Flow from Sale of Machine=9000-7500 $1,500
Cash flow for Purchase of Machinery -$85,000
B NET CASH FLOW FROM INVESTING ACTIVITIES -$83,500
Retained Earnings at Beginning $105,450
Add: Profit $10,130
Less: Dividend paid $10,000 (105450+10130-90580-15000)
Less:Unpaid Dividend $15,000
Retained Earnings at the End of the year $90,580
Cash flow from reduction of loan -$5,000 (130000-125000)
Cash flow from common stock $25,000 (126000-101000)
Payment of common stock dividend -$10,000
C NET CASH FLOW FROM   FINANCING ACTIVITIES $10,000 (-5000+25000-10000)
D=A+B+C NET INCREASE/(DECREASE) IN CASH $26,180

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