Grant Wood Corporation’s balance sheet at the end of 2013 included the following
ID: 2422293 • Letter: G
Question
Grant Wood Corporation’s balance sheet at the end of 2013 included the following items.
Current assets $236,608 Current liabilities $151,608 Land 31,454 Bonds payable 101,608 Buildings 121,608 Common stock 181,454 Equipment 91,454 Retained earnings 45,454 Accum. depr.-buildings (31,608 ) Total $480,124 Accum. depr.-equipment (11,000 ) Patents 41,608 Total $480,124
The following information is available for 2014. 1. Net income was $55,639.
2. Equipment (cost $21,608 and accumulated depreciation $9,608) was sold for $10,000.
3. Depreciation expense was $5,608 on the building and $10,608 on equipment.
4. Patent amortization was $2,500.
5. Current assets other than cash increased by $29,000. Current liabilities increased by $14,608.
6. An addition to the building was completed at a cost of $28,608.
7. A long-term investment (Equity) in stock was purchased for $16,000.
8. Bonds payable of $51,454 were issued.
9. Cash dividends of $30,000 were declared and paid.
10. Treasury stock was purchased at a cost of $11,000.
a. Prepare a statement of cash flows for 2014. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)
b. Prepare a balance sheet at December 31, 2014. (Show only totals for current assets and current liabilities.) (List Property, Plant and Equipment in order of Land, Building and Equipment.)
Explanation / Answer
(a) Grant Wood Corporation Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities
Net income...............................................................
$ $55,639
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment.............................
$ 2,000*
Depreciation expense......................................
16,216
Patent amortization..........................................
2,500
Increase in current liabilities..........................
14,608
Increase in current assets (other than cash)................................................................................
(29,000)
6,324
Net cash provided by operating activities.........
61,963
Cash flows from investing activities
Sale of equipment...................................................
10,000
Addition to building................................................
(28,608)
Investment in stock................................................
(16,000)
Net cash used by investing activities.................
(34,608)
Cash flows from financing activities
Issuance of bonds..................................................
51,454
Payment of dividends............................................
(30,000)
Purchase of treasury stock..................................
(11,000)
Net cash provided by financing activities..........
10,454
Net increase in cash....................................................
$37,809a
*[$10,000 – ($21,608 – $9,608)]
aAn additional proof to arrive at the increase in cash is provided as follows:
Total current assets—end of period
$303,417
[from part (b)]
Total current assets—beginning of period
236,608
Increase in current assets during the period
66,809
Increase in current assets other than cash
29,000
Increase in cash during year
$ 37,809
(b) Grant Wood Corporation Balance Sheet December 31, 2014
Assets
Current assets................................................
$303,417b
Long-term investments.................................
16,000
Property, plant, and equipment
Land............................................................
$ 31,454
Building ($121,608 + $28,608)................
$150,216
Less: Accum. depreciation
($31,608 + $5,608)..................................
(37,216)
113,000
Equipment ($91,454 – $21,608).............
69,846
Less: Accum. depreciation
($11,000 – $9,608 + $10,608)...............
(12,000)
57,846
Total property, plant, and equipment......
202,300
Intangible assets—patents
($41,608 – $2,500)..................................
39,108
Total assets........................................
$560,825
Liabilities and Stockholders’ Equity
Current liabilities ($151,608 + $14,608)...................
$166,216
Long-term liabilities
Bonds payable ($101,608 + $51,454).................
153,062
Total liabilities..................................................
319,278
Stockholders’ equity
Common stock.......................................................
$181,454
Retained earnings ($45,454 + $55,639 – $30,000).....
71,093
Total paid-in capital and retained earnings
252,547
Less: Cost of treasury stock...............................
(11,000)
Total stockholders’ equity.............................
241,547
Total liabilities and stockholders’ equity....
$560,825
bThe amount determined for current assets could be computed last and then is a “plug” figure. That is, total liabilities and stockholders’ equity is computed because information is available to determine this amount. Because the total assets amount is the same as total liabilities and stockholders’ equity amount, the amount of total assets is determined. Information is available to compute all the asset amounts except current assets and therefore current assets can be determined by deducting the total of all the other asset balances from the total asset balance (i.e., $560,825 – $39,108 – $202,300 – $16,000). 303417 .
(a) Grant Wood Corporation Statement of Cash Flows For the Year Ended December 31, 2014
Cash flows from operating activities
Net income...............................................................
$ $55,639
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment.............................
$ 2,000*
Depreciation expense......................................
16,216
Patent amortization..........................................
2,500
Increase in current liabilities..........................
14,608
Increase in current assets (other than cash)................................................................................
(29,000)
6,324
Net cash provided by operating activities.........
61,963
Cash flows from investing activities
Sale of equipment...................................................
10,000
Addition to building................................................
(28,608)
Investment in stock................................................
(16,000)
Net cash used by investing activities.................
(34,608)
Cash flows from financing activities
Issuance of bonds..................................................
51,454
Payment of dividends............................................
(30,000)
Purchase of treasury stock..................................
(11,000)
Net cash provided by financing activities..........
10,454
Net increase in cash....................................................
$37,809a
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