Question

Mackey Ltd. reported the following selected balances:

 

Other Information:

1. There was a stock dividend of $25,000 on common shares and a cash dividend of $35,000.

2. Of the preferred shares, $50,000 were retired for cash, and $75,000 were converted into bonds payable.

3. Some common shares were issued for cash during the period.

4. Machinery with a net book value of $28,100 and an original cost of $48,650 was sold during the year at a loss of $1,050. Other machinery was purchased for cash.

5. Any unexplained change in the accounts should be assumed to be because of logical transactions.

 

Required:

List the items that would appear on the SCF for 20X4, considering the changes in the accounts above, and the other information. Organize your SCF appropriately (operating, investing, financing) and indicate whether each item is added or subtracted. Also list the non-cash transactions that would be separately disclosed. You have not been provided with enough information (cash, other assets, and liabilities) to balance the SCF to the change in cash.

Answer 1

Mackey Ltd.

Partial Statement of Cash Flows

For the year ended 31 December 20X4

 

Operating activities:

      Net earnings ($178.45 - $25 - $35 = $118.45 vs. $233.75).....     $115,300

      Plus:    Depreciation expense (1).............................................           66,150

                  Loss on sale .................................................................               1,050

                  

Investing activities:

      Proceeds on sale of machinery (2)...........................................         27,050

      Purchase of machinery (3).......................................................      (160,100)

 

Financing activities:

      Proceeds on issuance of common shares ($250 + $25) vs. $390   115,000

      Retired preferred shares...........................................................           (50,000)

      Retired bonds ($100 +$75 = $175 vs. $150)...........................            (25,000)

      Cash dividends paid................................................................             ( 35,000)

 

Disclosure note: 

Non-cash transaction, stock dividend of $25,000 that increased common shares and decreased retained earnings.

Non-cash transaction, $75,000 of preferred shares was converted to bonds payable.

 

(1) ($48.65 - $28.1) = $20.55 eliminated on sale; $61.8 - $20.55 = $41.25 vs. $107.4 = $66.15

(2) NBV of $28.1 sold at a loss of $1.05

(3) $172.45 - $48.65 = $123.8 vs. $283.9 = $160.1

(1) ($48.65 - $28.1) = $20.55 eliminated on sale; $61.8 - $20.55 = $41.25 vs. $107.4 = $66.15

(2) NBV of $28.1 sold at a loss of $1.05

(3) $172.45 - $48.65 = $123.8 vs. $283.9 = $160.1