Purchase $53,000 in equipment by borrowing $53,000 with a note payable due in th

ID: 2493627 • Letter: P

Question

Purchase $53,000 in equipment by borrowing $53,000 with a note payable due in three years. No cash is exchanged in the transaction.

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)

VIDEO PHONES, INC.
Income Statement
For the Year Ended December 31, 2015 Net sales $ 2,636,000 Expenses: Cost of goods sold $ 1,600,000 Operating expenses 788,000 Depreciation expense 20,000 Loss on sale of land 7,300 Interest expense 11,500 Income tax expense 41,000 Total expenses 2,467,800 Net income $ 168,200 VIDEO PHONES, INC.
Balance Sheet
December 31 2015 2014 Assets Current assets: Cash $ 159,180 $ 85,940 Accounts receivable 73,300 53,000 Inventory 105,000 128,000 Prepaid rent 9,120 4,560 Long-term assets: Investments 98,000 0 Land 203,000 226,000 Equipment 256,000 203,000 Accumulated depreciation (60,600) (40,600) Total assets $ 843,000 $ 659,900 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 59,700 $ 74,000 Interest payable 5,300 8,600 Income tax payable 14,300 13,300 Long-term liabilities: Notes payable 271,000 218,000 Stockholders' equity: Common stock 230,000 230,000 Retained earnings 262,700 116,000 Total liabilities and stockholders’ equity $ 843,000 $ 659,900 Additional Information for 2015: 1. Purchase investment in bonds for $98,000. 2. Sell land costing $23,000 for only $15,700, resulting in a $7,300 loss on sale of land. 3.

Purchase $53,000 in equipment by borrowing $53,000 with a note payable due in three years. No cash is exchanged in the transaction.

4. Declare and pay a cash dividend of $21,500.

Required:

Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (List cash outflows and any decrease in cash as negative amounts.)

Explanation / Answer

Video Phone Inc

Cash Flow Statement for The Year Ending on December 31,2015

Particular

Amount

Operating Activities

Net Income

168,200

Add: Non-Cash Expense – Depreciation

20,000

Loss on sale of land

7,300

Increase in current asset ( except Cash)

-1860

Decrease in Current Liability

-16,600

Net Cash from Operating Activities

177,040

Investing Activities

Purchase of bonds

-98,000

Sale of Land

15,700

Net Cash from Investing Activities

-82,300

Financing Activities

Dividend Payment

-21,500

Net Cash from Financing Activities

-21,300

Net Cash Inflow during the year

73,240

Beginning Cash

85,940

Add- Net Cash Inflow during the year

73,240

Ending Cash at the end of year

159,180

Non Cash Transaction-

(‘1) Increase in notes payable of $ 53,000 against purchase of equipment is the non-cash item for the year.

(‘2) Depreciation of $ 20,000 is a non-cash item.