Presented below are the balance sheets of Trout Corporation as of December 31, Y
ID: 2534123 • Letter: P
Question
Presented below are the balance sheets of Trout Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands.
Trout Corporation
Balance Sheets
December 31, Year 1 and Year 2
Assets Year 1 Year 2
Cash $ 85 $ 127
Accounts receivable 245 253
Less: Allowance for doubtful accounts (9) (11)
Prepaid insurance 15 9
Inventory 225 234
Long-term investment 65 42
Land 160 160
Buildings and equipment 250 300
Less: Accumulated depreciation (75) (100)
Trademark 25 22
Total Assets $ 986 $1,036
Liabilities & Stockholders’ Equity
Accounts payable $ 50 $ 36
Salaries payable 9 6
Deferred tax liability 15 18
Lease liability -- 75
Bonds Payable 275 125
Less: Discount (26) (24)
Common Stock 250 280
Paid-In Capital –in excess of par 75 70
Preferred Stock - 105
Retained Earnings 338 345
Total Liabilities & Stockholders’ Equity $ 986 $ 1,036
Trout Corporation
Income Statement
For the Year Ended December 31, Year 2
Net sales revenue $ 380
Investment revenue 12
Operating Expenses:
Cost of Goods $ 150
Salaries expense 58
Depreciation expense 35
Trademark amortization 3
Bad debts expense 8
Insurance expense 20
Bond interest expense 45 319
Operating Income $ 73
Other Income (Expense):
Loss on building fir $(27)
Gain on sale of investments 4 (23)
Pre-Tax Income from Continuing Operations $ 50
Less: Income Tax Expense: 25
Net Income $ 25
Additional Information:
Shareholders were paid cash dividends of $18 million.
A building that originally cost $40 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $3 million.
Investment revenue includes Trout Corporation's $7 million share of the net income of Bass Corporation, an equity method investee.
$30 million par value of common stock was sold for $60 million, and $70 million of preferred stock was sold at par.
A long-term investment in bonds, originally purchased for $30 million, was sold for $34 million.
Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million.
The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $90 million. Annual lease payments of $15 million are paid at January 1st of each year starting in Year 2.
$150 million of bonds were retired at maturity.
Required:
Use the EXCEL worksheet template provided. There are three tabs-
Direct Method Statement of Cash Flows (SCF)
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Cash flows from Operating Activities – CFOs Indirect Method
Explanation / Answer
Statement of cash flow working Cash flows from operating activities (a) Sales sales 380 Collection from customers 374.00 Add: Increase in accounts receivable -6 From Investment revneue (12-7-4) 1 (253-11)-(245-9) Payment to suppliers -173 Cash receipts (collections from customers) 374 Payment of salaries -61 Payment of Insurance -14 (b) Cost of goods sold Payment of Interest -47 Cost of good sold 150 Payment of Income tax (22.00) Add: ending Inventory 234 Goods avialable for sale 384 Less: Beginning Inventory 225 58.00 Purchases 159 Net cash from operating activities 58.00 dedcut: ending accounts payable 36 123 Cash flows from investing activities Add: Opening Accounts payable 50 Payment of lease -15 Cash purchases (payments for merchandise) 173 Sale of long term investment 34 Sale of MACHINE Copmponents 3 22 (c) Income taxes Net cash used investing activities 22.00 Income tax expense 25 Cash flows from financing activities Deduct ending income tax payable 0 Borrowings from Bonds Payable 25 Retirement of Bonds Payable (150.00) Add beginning income tax payable 0 Issue of Preferred stock 70.00 25 Less: ending DTL 18 Issue of Common stock 60 add: beginning DTL 15 Payment of Dividends -18 (38.00) Payment of income tax 22 Net cash from financing activities (38.00) Net Increase in cash and cash equivalents 42.00 d) Payment of salaries Salaries expenses 58 Cash and cash equivalents at beginning of period 85.00 Ded ending salaries payable 6 Ending Balance 127.00 52 Add: beginning salaries payable 9 d) Payment of salaries 61 Statement of cash flow e) Payment of Insurance Cash flows from operating activities Insurance expenses 20 Add: ending prepaid insurance 9 Net income 25.00 29 Adjustment to reconcile net income to cash basis Less: Beginning prepaid imsurance 15 Depreciation expenses 35 e) Payment of Insurance 14 Trade mark mortization 3 Bad debt expenses 8 f) Payment of Interest Gain on sale of Investment -4 Interest expenses 45 Loss on Building fire 27 Ded ending interest payable 0 Increase in Accounts Receivable -6 45 Increase in mercandise inventory -9 Add: beginning interest payable 0 Decraese in prepaid expenses 6.00 45 Decrease in Accounts payable (14.00) Add: ending discount on bonds pyable 24 Decraese in salaries payable (3.00) 21 Increase in Deferred tax liab ility 3.00 Add: beginning discount on bonds 26 Decrease in Bonds discount 2.00 f) Payment of Interest 47 Payment of lease -15 33.00 Net cash from operating activities 58.00 From Investment revneue From Investment revneue (12-7) 5 Add: beginning revenue 0 5 Less: ending revneue receivable 0 5
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