Sunnyvale Corporation prepared the following balance sheet data for 2015 and 201

Question

Sunnyvale Corporation prepared the following balance sheet data for 2015 and 2014:

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Cash needed to purchase new equipment and to improve the company's working capital position was raised by borrowing from the bank with a long-term note. Equipment costing $75,000 with a book value of $15,000 was sold for $18,000; the gain on the sale was included in net income. The company paid cash dividends of $90,000 and reported earnings of $280,000 for 2015. There were no entries in the retained earnings account other than to record the dividends and net income for the year.

Prepare a statement of cash flows for 2015 using the indirect method.

Dec.31, 2015 Dec.31, 2014 Cash and cash equivalents 518,500 675,000 Accounts receivable 360,000 345,000 Merchandise inventory 750,000 654,000 Prepaid insurance 4,500 6,000 Buildings and equipment 5,515,500 4,350,000 Accumulated depreciation - buildings and equipment (2,235,000) (1,995,000) Total Assets 4,913,500 4,035,000 Accounts payable 613,500 945,000 Salaries payable 75,000 105,000 Notes payable - bank (current) 150,000 600,000 Notes payable - bank (long term) 1,500,000

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Common stock 2,400,000 2,400,000 Retained earnings (deficit) 175,000 (15,000) Total liabilities and stockholders' equity 4,913,500 4,035,000

Explanation / Answer

Statement of cash flows for 2015 using the indirect method

Cash flow from Operating Activities Amount $ Amount $ Net Income 280000 Adjustments: Depreciation and amortization 300000 Increase in trade receivables (15000) Increase in inventories (96000) Decrease in Prepaid Insurance 1500 Gain on sale of equipment (3000) Decrease in Account Payables (331500) Decrease in Salary payables (30000) (174000) Cash generated from operations 106000 Cash flows from investing activities Purchase of building and equipment (1240500) Proceeds from sale of equipment 18000 Net cash used in investing activities (1222500) Cash flows from financing activities Proceeds from issuance of long-term debt 1500000 Dividends paid (90000) Notes payable paid off (450000) Net cash used in financing activities 960000 Net increase in cash and cash equivalents (156,500) Cash and cash equivalents at beginning of period 675,000 Cash and cash equivalents at end of period 518,500

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