Land was acquired for $30,220 in exchange for common stock, par $30,220, during
ID: 2475222 • Letter: L
Question
Land was acquired for $30,220 in exchange for common stock, par $30,220, during the year; all equipment purchased was for cash. Equipment costing $12,539 was sold for $3,140; book value of the equipment was $5,970. Cash dividends of $9,380 were declared and paid during the year.
compute net cash provide(used) by:
a) Operating activities
b) investing activities
c) financing activities
2014 2013 Cash Accounts receivable (net) Inventory Prepaid expenses Equipment Accumulated depreciation-equipment Land $29,651 54,834 64,540 14,561 89,567 $34,556 44,787 44,517 24,932 74,690 (18,019) (7,809) 69,860 $304,994 39,640 $255,313 Accounts payable Accrued expenses Notes payable-bank, long-term Bonds payable Common stock, $10 par Retained earnings $65,043 15,362 $51,938 17,905 22,991 0 0 29,581 188,810 6,198 $304,994 158,590 3,889 $255,313Explanation / Answer
CASH FLOW STATEMENT (INDIRECT METHOD) :
__________________________________________________________________________________________
$ $
A. CASH FLOW FROM OPERATING ACTIVITIES :
Net profit ( 6198 - 3889) 2,309
Add: Depreciaiton on equipment (WN-1) 16,779
Dividends provided and paid 9,380
Loss on sale of equipment (5,970 - 3140) 2,830
Cash from Operating activities before working capital cahnges 31,298
AdJust. of working capital changes:
Less: Increase in Accounts receivable (10,047)
Less: Increase in Inventory (20,023)
Add: Decrease in prepaid expenses 10,371
Add: Increase in Accounts payable 13,105
Less: Decrease in Accrued expenses (2,543)
Cash from Operating Activities 22,161
B. CASH FROM INVESTING ACTIVITIES
Purchase of Equipment (WN-2) (27,416)
Sale of equipment 3,140
Net cash used for Investing Activities (24,276)
C. CASH FLOW FROM FINANCING ACTIVITIES :
Redemption of Notes Payable (22,991)
Issue of bonds 29,581
Dividend paid (9,380)
Net cash Used for financing activities (2,790)
Net decease in cash (4,905)
Add: Cash balance in the beginning of the year 34,556
Cash balance at the end of the year 29,651
WORKING NOTES:
1. Depreciation provision for the year 2014
= Deprecaiiton on Plant disposed + Closing balance of Equipment - Opening balance of equipment
= $6,569 + 18,019 - 7,809 = $16,779
2. Purchase of Equipment in 2014
= Depreciaiton on asset disposal + Cost of asset disposed + Closing balance of equipment - Opening balance of equipment = $6569 + 12,539 + 89,567 - 74,690 = $27,416
3. Since Land purchased by issue of common stock, cash flow does not happen, so it will not be recorded in cash flow statement. Issue of stock also made for acquisition of land, so it also does not involve cash flows
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