The following information and financial statements excerpts pertain to Liquidity
ID: 2536255 • Letter: T
Question
The following information and financial statements excerpts pertain to Liquidity, Inc.
All short term investments (securities available for sale) were purchased on 12/31/18 and sold during 2019.
The company entered a lease agreement on 12/31/19.
Fixed assets with a net book value of $15 were sold during the year.
The company repaid the current portion of long-term debt during the year.
Dividend was declared and partially paid.
Required (Please answer the following questions):
-Prepare the statement of cash flows for the year 2019 using the direct method.
-Reconcile net income and net cash flows from operating activities for the year 2019.
2018 2019 Assets Cash 54 45 Short term investments 95 0 Accounts receivable 45 85 Inventory 52 75 Prepaid general expenses 11 15 Fixed assets under capital lease, net 0 50 Fixed assets, net 165 228 422 498 Liabilities and stockowners’ equity Accounts payable 38 48 Wages payable 12 6 Tax payable 3 5 Dividend payable 0 4 Current portion of long term debt 10 12 Obligations under capital leases 0 50 Long term debt 183 180 Common stock 150 163 Retained earnings 26 30 422 498Explanation / Answer
Cash flow from Operating Activities :-
Cash collection from customers
386
Cash Paid to Supplier
-323
General Exp Paid (30 + 4 {increase prepaid general exp})
-34
Wages (42 + 6 {decrease wages payable})
-48
Interest Exp paid
-11
Tax Expense paid (8 – 2 {increase income tax payable}
-6
Cash flow from Operating Activities (A)
-36
-36
Cash flow from Investing Activities :-
Sale of Fixed asset (15 – 3)
12
Fixed asset purchase
-102
AFS securities sold (95 + 12)
107
Cash flow from Investing Activities (B)
17
17
Cash flow from Financing Activities :-
Current portion of long term dept repaid
-10
Current portion of long term dept Issue
12
Long Term Dept repay
-3
Common stock issue
13
Dividend Paid
-2
Cash flow from Financing Activities (C)
10
10
Net Cash flow (A+B+C)
-9
Beginning cash Balance
54
Ending Cash Balance
45
Cash collection from Customers:-
Revenue
426
(-) Increase A/c receivable
40
Cash collection from Customers
386
Cash Paid to Supplier:-
COGS
310
(-) Increase A/c Payable
10
(+) Increase Inventory
23
Cash Paid to Supplier
323
Fixed Asset Purchase:-
Beginning balance of Net fixed asset
165
(-) Net Book value of asset sold
15
(-) Depreciation on asset
24
(-) Ending balance of Net fixed asset
228
Fixed Asset Purchase
102
Dividend Paid :-
Retained Earning Beginning Balance
26
(+) Net Income
10
Retained Earning Ending Balance
30
(-) Increase in dividend payable
4
Dividend Paid
2
(2) Reconcile net income and net cash flows from operating activities for the year 2019 :-
Net Income
10
(+) Depreciation charges
24
(-) Gain on sale of AFS securities
-12
(+) Loss on sale of fixed asset
3
(-) Increase A/c Receivable
-40
(-) Increase Inventory
-23
(-) Increase Prepaid general exp
-4
(+) Increase A/c Payable
10
(-) Decrease wages payable
-6
(+) Increase tax payable
2
Cash flow from operating activities
-36
Cash flow from Operating Activities :-
Cash collection from customers
386
Cash Paid to Supplier
-323
General Exp Paid (30 + 4 {increase prepaid general exp})
-34
Wages (42 + 6 {decrease wages payable})
-48
Interest Exp paid
-11
Tax Expense paid (8 – 2 {increase income tax payable}
-6
Cash flow from Operating Activities (A)
-36
-36
Cash flow from Investing Activities :-
Sale of Fixed asset (15 – 3)
12
Fixed asset purchase
-102
AFS securities sold (95 + 12)
107
Cash flow from Investing Activities (B)
17
17
Cash flow from Financing Activities :-
Current portion of long term dept repaid
-10
Current portion of long term dept Issue
12
Long Term Dept repay
-3
Common stock issue
13
Dividend Paid
-2
Cash flow from Financing Activities (C)
10
10
Net Cash flow (A+B+C)
-9
Beginning cash Balance
54
Ending Cash Balance
45
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