Question: Reporting Investing Activities An analysis of the income statement and
ID: 2459228 • Letter: Q
Question
Question:
Reporting Investing Activities
An analysis of the income statement and the balance sheet accounts of Headrick, Inc., at December 31,
2011, provide the following information:
Income statement Items:
Gain on Sale of Marketable Securities $ 42,000
Loss on Sales of Plant Assets 33,000
Analysis of balance sheet accounts:
Marketable Securities account:
Debit entries $ 75,000
Credit entries 90,000
Notes Receivable account:
Debit entries 210,000
Credit entries 162,000
Plant and Equipment accounts:
Debit entries to plant asset accounts 196,000
Credit entries to plant asset accounts 120,000
Debit entries to accumulated depreciation accounts 75,000
Additional Information
1. Except as noted in 4 below, payments and proceeds relating to investing transactions were made in
cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relate to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($196,000) were financed by paying $60,000 in cash and
issuing a long-term note payable for $136,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets are
retired. Thus, the book value of plant assets retired during the year was $45,000 ($120,000 – $75,000).
Instructions
a. Prepare the investing activities section of a statement of cash flows. Show supporting computations for
the amounts of (1) proceeds from sales of marketable securities and (2) proceeds from sales of plant
assets. Place brackets around numbers representing cash outflows.
b. Prepare the supporting schedule that should accompany the statement of cash flows in order to
disclose the noncash aspects of the company’s investing and financing activities.
c. Assume that Headrick’s management expects approximately the same amount of cash to be used for
investing activities next year. In general terms, explain how the company might generate cash for this
purpose.
Question from textbook: Financial and Managerial Accounting 16th edition, Ch. 13 Problem 2PSA
Explanation / Answer
a.
HEADRICK INC.
Partial statement of cash flows
For the year ended December 31,2011
Cash flow from investing activities
Purchases of marketable securities
-$75,000.00
Proceeds from sales of marketable securities (Note 1)
$132,000.00
Loans made to borrowers
-$210,000.00
Colletions on loans
$162,000.00
Cash paid to acquire plant assets (refer part b)
-$60,000.00
Proceeds from sales of plant assets (Note 2)
$12,000.00
-$39,000.00
Note 1:
Cost of securities sold
$90,000.00
Add: Gain on sale of marketable securities
$42,000.00
Proceeds from sales of marketable securities
$132,000.00
Note 2:
Cost of plant assets sold
$120,000.00
Less: Accumulated depreciation on plant assets sold
$75,000.00
Book value of plant assets sold
$45,000.00
Less: Loss on plant assets sold
$33,000.00
Proceeds from sales of plant assets
$12,000.00
b.
Schedule of noncash financing and investing activities
Purchases of plant assets
$196,000.00
Less: Amount finaned through long term debt
$136,000.00
Cash paid to acquire plant assets
$60,000.00
c.
Cash must be generated to cover the company’s investment needs through operating or financing activities. Ideally, cash to support investing activities should come from normal operations. If this places undue strain on the company’s operations, however, financing via borrowing and/or sale of capital stock are alternatives the company should consider.
HEADRICK INC.
Partial statement of cash flows
For the year ended December 31,2011
Cash flow from investing activities
Purchases of marketable securities
-$75,000.00
Proceeds from sales of marketable securities (Note 1)
$132,000.00
Loans made to borrowers
-$210,000.00
Colletions on loans
$162,000.00
Cash paid to acquire plant assets (refer part b)
-$60,000.00
Proceeds from sales of plant assets (Note 2)
$12,000.00
-$39,000.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.