Statement of Cash Flow Given the following income statement and comparative bala

Question

Statement of Cash Flow

Given the following income statement and comparative balance sheets for Illinois Corp. (NOTE THAT 2016 IS LISTED

Comparative Balance Sheets  

December 31

2016            2017           

Cash ..........................     $ 1,100           $ 1,900                     

Accounts Receivable.... 2,000           2,350

Inventory...................... 1,300           2,500

Prepaid insurance ...........3,800           3,200

Land .........................     5,400           1,000                      

Buildings & Equip (net)... 28,000           44,800

Equity Method Investment 3,500           14,500

TOTAL ...................     $55,100           $70,250    

Accounts Payable ..............     1,600           2,200

Notes Payable (trade)..........     2,000           2,500

Long-term Notes Payable             5,000           8,500

Bonds Payable (long term).......... 5,000           5,000

Premium on Bonds Payable......          400               300   

Common Stock ..................     32,000           38,700                  

Retained earnings .............     9,100           13,050                      

TOTAL                               $55,100           $70,250

Income Statement for 2017

Sales revenue                             $ 23,700

            Cost of goods sold                         (14,000

Depreciation expense - equipment          (1,700)

  Insurance expense                            (500)

  Interest expense                              (600)

Income tax expense                            (200)

Other operating expenses (all cash)           (900)

Income from equity investment                1,200

Gain on sale of land                          500

Net income                                 $ 7,500

Additional information for 2017:

1.    The only activities in retained earnings were for income and dividends

      (calculate the dividends using the standard retained earnings formula).

2.    The trade N/P should be treated like accounts payable in all calculations.

3.    A building was purchased for $12,500 cash.

4.    Another building was purchased with a long-term note of $4,000.

5.    Land with a cost of $4,400 was sold for cash at a gain of $500 (you will need to calculate the amount of cash received).

6.    Equipment was purchased for $2,000 cash.

7.    A cash payment of $500 was made on the long-term notes payable.

8.    The change in common stock was due to the issue of no-par stock for cash.

Part 1: On the answer sheet provided, prepare the Statement of Cash Flows for Illinois Corp. (using the indirect method for the operating section. Any supplementary material should be placed at the bottom of the page, after the statement.

Part 2: Calculate the amounts that would be shown in the operating section of the Statement of Cash Flow if Illinois Corp. were using the direct method. Complete the partial worksheet that is displayed in the answer sheet.

Explanation / Answer

Part 1) lllinois Corp. Statement of Cash Flows (indirect method) For the year ended Dec 31, 2017 Amount $ Operating Activities Net Income 7,500 Adjustments: Non-Cash adjustment: Depreciation 1,700 Gain on sale of land              -500 Due to changes in Working capital Due to changes in accounts receivable (2000-2350) -350 Due to changes in Inventories (1300-2500)           -1,200 Due to changes in Pre-paid insurance (3800-3200)                600 Due to changes in accounts payable (2200-1600)                600 Due to changes in Note payable (trade) (2500-2000)                500 Net Cash provided (used) by operating activities            8,850 Investing Activities Cash used to acquire Building        -12,500 Cash used to acquire Equipment           -2,000 Cash from sale of land (4400+500)            4,900 Due to change in short-term investments (13500-14500)           -1,000 Net cash provided (used) by investing activities        -10,600 Financing Activities Due to change in Long-term notes payable              -500 Due to change in common stock (38700-32000)            6,700 Payment of common dividends (7500-(13050-9100))           -3,550 Due to change in Premium on Bonds Payable (300-400)              -100 Net cash provided (used) by investing activities)            2,550 Net increase/decrease in cash                800 Add: Cash balance at the begining of the year            1,100 Cash balance at the end of the year            1,900 Part 2) lllinois Corp. Statement of Cash Flows (direct method) For the year ended Dec 31, 2017 Amount $ Operating Activities Cash receipts from customers (2000+23700-2350) 23,350 Cash paid to suppliers (14000+2500-1300+1600+2000-2200-2500) -14100 Cash paid for Insurance (3200+500-3800) 100 Cash paid for other operating expense -900 Receipts of Income from equity investment 1,200 Interest paid              -600 Income taxes paid              -200 Net Cash provided (used) by operating activities            8,850 Investing Activities Cash used to acquire Building        -12,500 Cash used to acquire Equipment           -2,000 Cash from sale of land (4400+500)            4,900 Due to change in short-term investments (13500-14500)           -1,000 Net cash provided (used) by investing activities        -10,600 Financing Activities Due to change in Long-term notes payable              -500 Due to change in common stock (38700-32000)            6,700 Payment of common dividends (7500-(13050-9100))           -3,550 Due to change in Premium on Bonds Payable (300-400)              -100 Net cash provided (used) by investing activities)            2,550 Net increase/decrease in cash                800 Add: Cash balance at the begining of the year            1,100 Cash balance at the end of the year            1,900

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