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Problem 23-2 Your answer is partially correct. Try again The comparative balance

ID: 2438652 • Letter: P

Question

Problem 23-2 Your answer is partially correct. Try again The comparative balance sheets for Ayayai Corporation show the following information December 31 2017 2016 as Accounts receivable Inventory Available-for-sale debt investments Buildings Equipment Patents $33,700 $13,200 9,900 9,100 3,000 29,500 19,800 6,100 $107,800 $90,600 12,100 12,000 45,000 5,000 Allowance for doubtful accounts Accumulated depreciation-equipment Accumulated depreciation-building Accounts payable Dividends payable Notes payable, short-term (nontrade) Long-term notes payable Common stock Retained earnings $3,100 $%4,500 4,500 6,100 3,000 4,900 4,000 31,000 25,000 43,000 33,000 5,600 $107,800 $90,600 2,000 5,000 2,900 20,800 Additional data related to 2017 are as follows 1. Equipment that had cost $11,100 and was 40% depreciated at time of disposal was sold for $2,500 2. $10,000 of the long-term note payable was paid by issuing common stock 3. Cash dividends paid were $4,900 4. On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,200 (net of $2,100 taxes) 5. Investments (available-for-sale) were sold at $1,800 above their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,400 were paid in cash

Explanation / Answer

HINCKLEY CORPORATION Statement of cash flows (Indirect method) For the year ended December 31, 2014 Cash Flow from operating activities: Net income 15200 Adjustment to reconcile net income to net cash provided by operating activities: Add:Depreciation expense (see note 1) 1940 Add: Loss on sale of equipment 4160 Less: Gain from flood damage (see note 3) -8900 Less: Increase in accounts receivables (see note 2) -3600 Add: Patent amortization 1100 Less: Gain on sale of investment   -1800 Add: Increase in accounts payable 2000 Less: Increase in inventory -2900 -8000 Net cash provided by operating activities (a) 7200 Cash flows from investing activities: Proceeds from sale of equipment 2500 Less: purchase of new equipment -20300 Add: Proceeds from flood damage (see note 3) 32300 Add: Proceeds from sale of investment 4800 Net cash used in investing activities (b) 19300 Cash flows from financing activities: Less: Payment of dividend -4900 Less: payment of short term note payable ($4000- $2900) -1100 Net cash used in financing activities © -6000 Net increase (decrease) in cash (a) + (b) + © 20500 Add:Cash balance at December 31, 2013 13200 Cash balance at December 31, 2014 33700 Supporting disclosures of cash flow information: Cash paid during the year for: Interest 2000 Income taxes 6400 Non cash investing and financing activities: Retired note payable by issuing common stock 10000 Purchased equipment by issuing note payable 16000 26000 Computational notes: Note: 1 Calculating depreciation expense Accumulated depreciation on equipment sold 4440 Less: Decrease in accumulated depreciation on equipment ($2000 - $4500) -2500 Depreciation expense 1940 Note:2 calculating increase in accounts receivable Ending accounts receivable 12100 Less: allowance for doubtful accounts -3100 Ending accounts receivables , net (a) 9000 Beginning accounts receivables 9900 Less: allowance for doubtful accounts -4500 Beginning accounts receivables, net (b) 5400 Increase in accounts receivable (a - b) 3600 Note: 3 Calculating gain from flood damage Insurance proceeds 30200 Add: taxes 2100 Total insurance proceeds (a) 32300 Beginning building value 29500 Less: accumulated depreciation on building -6100 Book value of building (b) 23400 Gain from flood damage ( a- b) 8900

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