Additional Problem 12 Sheridan Ltd., which follows ASPE, had the following compa
ID: 2341121 • Letter: A
Question
Additional Problem 12
Sheridan Ltd., which follows ASPE, had the following comparative statement of financial position:
Additional information:
Prepare the statement of cash flows using the indirect format. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000)
Comparative Statement of Financial Position
As at December 31 Assets 2018 2017 Cash $ 70,520 $ 43,000 Accounts receivable 116,960 87,720 Inventories 68,800 103,200 Prepaid insurance 8,600 6,880 Equipment 264,880 223,600 Accumulated depreciation-equipment (60,200 ) (43,000 ) Patents 68,800 86,000 Total assets $ 538,360 $ 507,400 Liabilities and Shareholders’ Equity Accounts payable $ 79,120 $ 68,800 Interest payable 6,880 10,320 Wages payable 13,760 6,880 Income taxes payable 13,760 17,200 Long-term note payable 103,200 118,680 Common shares 223,600 223,600 Retained earnings 98,040 61,920 Total liabilities and shareholders’ equity $ 538,360 $ 507,400
Explanation / Answer
Sheridan Ltd.
Statement Cash Flows
For the year ended December 31 2018
Cash Flow from Operating Activities:
Net Income
$ 46,440.00
Add: Adjustments
Depreciation Expense
$ 41,280.00
Profit on Disposal of Equipment
$ (3,440.00)
Increase in Accounts Receivables
$ (29,240.00)
Decrease in Inventory
$ 34,400.00
Increase in Prepaid Expenses
$ (1,720.00)
Amortization of Patent
$ 17,200.00
Increase in Accounts Payable
$ 10,320.00
Decrease in Income tax payable
$ (3,440.00)
Decrease in Interest payable
$ (3,440.00)
Incresae in Wages payable
$ 6,880.00
$ 68,800.00
A. Net Cash Provided by Operating Activities
$ 115,240.00
Cash Flow from Investing Activities:
Sale of Equipment
$ 13,760.00
Purchase of Equipment
$ (75,680.00)
B. Net Cash Used in Investing Activities
$ (61,920.00)
Cash Flow from Financing Activities:
Payments to notes payable
$ (15,480.00)
Payment of Dividend
$ (10,320.00)
C. Net Cash Provided by Financing Activities
$ (25,800.00)
Net Decrease in cash [A+B+C]
$ 27,520.00
Add: cash at the beginning
$ 43,000.00
Cash at the end
$ 70,520.00
Working notes
Calculation of Depreciation for the year
Opening Accumulated depreciation balance
$ 43,000.00
Less: Depreciation of Equipment sold(34400x70%)
$ 24,080.00
$ 18,920.00
Les: Closing balance of Accumulated depreciation
$ 60,200.00
Depreciation Expense for the year
$ 41,280.00
Note-
1) Accumulated depreciation on sold assets is Debited to accumulated depreciation account which increases the balance on Accumulated Depreciation Account.
Calculation of Equipment purchased.
Gross Opening balance of Equipment account
$ 223,600.00
Less: Original value of Equipment sold during year
$ 34,400.00
$ 189,200.00
Gross Closing balance of Equipment account
$ 264,880.00
Equipment purchased
$ 75,680.00
Calculation of Dividends paid
Beginning balance of Retained earnings
$ 61,920.00
Add: Income earned
$ 46,440.00
Subtotal
$ 108,360.00
Ending balance of Retained earnings
$ 98,040.00
Dividends paid
$ 10,320.00
Depreciation and Patent amortization are non cash expense operating expense hence added to net profit to calculated cash from operations.
Sheridan Ltd.
Statement Cash Flows
For the year ended December 31 2018
Cash Flow from Operating Activities:
Net Income
$ 46,440.00
Add: Adjustments
Depreciation Expense
$ 41,280.00
Profit on Disposal of Equipment
$ (3,440.00)
Increase in Accounts Receivables
$ (29,240.00)
Decrease in Inventory
$ 34,400.00
Increase in Prepaid Expenses
$ (1,720.00)
Amortization of Patent
$ 17,200.00
Increase in Accounts Payable
$ 10,320.00
Decrease in Income tax payable
$ (3,440.00)
Decrease in Interest payable
$ (3,440.00)
Incresae in Wages payable
$ 6,880.00
$ 68,800.00
A. Net Cash Provided by Operating Activities
$ 115,240.00
Cash Flow from Investing Activities:
Sale of Equipment
$ 13,760.00
Purchase of Equipment
$ (75,680.00)
B. Net Cash Used in Investing Activities
$ (61,920.00)
Cash Flow from Financing Activities:
Payments to notes payable
$ (15,480.00)
Payment of Dividend
$ (10,320.00)
C. Net Cash Provided by Financing Activities
$ (25,800.00)
Net Decrease in cash [A+B+C]
$ 27,520.00
Add: cash at the beginning
$ 43,000.00
Cash at the end
$ 70,520.00
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