Question

Given only, the following information, answer the questions below. Increases and Decreases represent the change from prior year to current year. (Note to you are not told what the change in cash was for the year.)

Other Info: Equipment was sold in the current year with original cost of $70,000 and a book value of $40,000 for cash proceeds of $50,000. The decrease in Short-Term Investments was the sale of shares in another company for $14,000. The company declared a $10,000 cash dividend during the year. The company also issued a note payable in exchange for new equipment.

Please determine the cash flows generated from a)operating, b)investing, and c)financing activities.

Decrease in Accounts Receivable	6,000
Decrease in Inventory	4,000
Decrease in Property Plant and Equipment	40,000
Decrease in Short –Term Investments	10,000
Increase in Long-Term Bonds Payable	30,000
Increase in Accounts Payable	30,000
Increase in Retained Earnings	60,000
Increase in Common Stock	50,000
Increase in Salaries Payable	8,000
Decrease in Prepaid Expenses	3,000
Increase in Unearned Revenue	11,000
Increase in Accumulated Depreciation	5,000
Decrease in Dividends Payable	7,000

Answer 1

Cash flow Statement

Operating Activities:
Changes in Retained earnings	60000
Less: Profit on sale of equipment (50000 - 40000)	-10000
Add: Dividend Declared (NOTE 1)	10000
Add: Depreciation (NOTE 2)	35000
Changes in working capital:
Decrease in Accounts receivable	6000
Decrease in inventory	4000
Decrease in Short term investment	10000
increase in Accounts payable	30000
Increase in Salaries payable	8000
Decrease in prepaid expense	3000
Increase in Unearned revenue	-11000	145000
Investing Activities:
Sale of equipment	50000	50000
Financing Activities
Long term bonds	30000
Common Stock Issued	50000
Dividends	-7000	73000
Cashflows during the year		268000

Note:

1. Dividend Declared are reduced from Retained earnings of $ 60000. Hence added back.

2.There is a net increase in Accumulated depreciation $ 5000. However when equipment was sold, accumulated depreciation thereon of $ 30000 (ie 70000 - 40000) was reduced from this a/c. Hence the depreciation for the year should be $ 30000 + $ 5000 = $ 35000.

3. The company also issued a note payable in exchange for new equipment is a non-cash item.