Problems: Set A 2018 2017 Assets Cash Accounts receivable Inventory Land Buildin

Question

Problems: Set A 2018 2017 Assets Cash Accounts receivable Inventory Land Buildings Accumulated depreciation-buildings Equipment Accumulated depreciation-equipment Total assets Liabilities and Shareholders' Equity Bank overdraft Accounts payable Income tax payable Interest payable Dividends payable Bank loan payable-current portion Bank loan payable-non-current portion Common shares Retained earnings Total liabilities and shareholders' equity $ 23,000 25,000 34,000 100,000 527,000 36,000 55,000 110,000 263,000 (67,000) (100,000) 85,000 40,000 (18,000)10,000) $709,000 $394,00 $0- 43,000 3,000 $ 8,000 26,000 2,000 7,000 1,000 20,000 212,000 88,000 30,000 6,000 3,000 26,000 380,000 198,000 50,000 $709,000 Additional information regarding 2018: 1. Net income was $57,000. 2. A gain of $7,000 was recorded on the disposal of a small parcel of land. No land was purchased during the year. 3. A gain on disposal of $38,000 was recorded when an old building was sold for $50,000 cash. A new building was purchased for $364,000 and depreciation expense on buildings for the year was $55,000. 4. Equipment costing $65,000 was purchased while a loss of $4,000 was recorded on equipment that was sold for $5,000 The equipment that was sold late in the year had accumulated depreciation of $11,000. 5. The company took out $210,000 of new bank loans during the year. 6. Dividends were declared and paid and no common shares were bought back by the company. Instructions (a) Prepare the statement of cash flows using the indirect method. (b) Did the company manage its noncash working capital effectivel (c) How could the company afford to buy a new building?

Explanation / Answer

Cash flow indirect method Cash flow from operating activities Net income 57000 Adjustments to reconcile the net income Gain on sale of building -38000 Depreciation expense 74000 Gain on sale of land -7000 Loss on sale of equipment 4000 Changes in current asset and liabilities decrease in accounts receivable 11000 decrease in Inventory 21000 Increase in accounts payable 17000 Decrease in interest payable -1000 Increase in income tax payable 1000 82000 Cash flow from operating activities 139000 Cash flow from Investing activities Building purchase -364000 Equipment sold 5000 Equipment purchased -65000 Sales of land 17000 Sales of building 50000 Cash flow from Investing activities -357000 Cash flow from Financing activities Paid in capital in excess Common stock 110000 Dividend -35000 Bank loan 210000 Bank loan paid -36000 Cash flow from Financing activities 249000 Net Cash and cash equivalent 31000 Add Beginning cash and cash equivalent -8000 Ending cash and cash equivalent 23000

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