A comparative balance sheet for Chelsea Corporation is presented below CHELSEA C

Question

A comparative balance sheet for Chelsea Corporation is presented below CHELSEA CORPORATION Comparative Balance Sheet 2017 2016 Assets Cash Accounts receivable (net) Prepaid insurance Land Equipment Accumulated depreciation $38,000 70,000 25,000 18,000 70,000 (20,000 $31,000 60,000 17,000 40,000 60,000 (13,000) $195,000 Total Assets $201000 Accounts payable Bonds payable Common stock Retained earnings $13,000 27,000 140,000 21000 $ 6,000 19,000 115,000 55,000 Total liabilities and stockholders' equity Additional information: 1. Net loss for 2017 is $18,000. 2. Cash dividends of $16,000 were declared and paid in 2017 3. Land was sold for cash at a loss of $4,000. This was the only land transaction during the year 4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $7,000 cash 5. $22,000 of bonds were retired during the year at carrying (book) value. 6. Equipment was acquired for common stock. The fair value of the stock at the time of the exchange was $25,000 Instructions Prepare a statement of cash flows for the year ended 2017, using the indirect method. Hints: Use T-accounts to find Depreciation expense and for the issuance of Bonds Payable

Explanation / Answer

STATEMENT OF CASH FLOWS (INDIRECT METHOD) Cash flows from operating activities: Net loss -18000 Adjustments to reconcile net loss with cash flow from operating activities: Depreciation (20000-13000+10000) 17000 Loss on sale of land 4000 Gain on sale of equipment -2000 Increase in accounts receivable (70000-60000) -10000 Increase in prepaid insurance (25000-17000) -8000 Increase in accounts payable (13000-6000) 7000 26000 Net Cash provided by operating activities 8000 Cash flows from investing activities: Sale of equipment 7000 Net cash used by operating activities 7000 Cash flows from financing activities: Retirement of bonds -22000 Sale of bonds 30000 Dividends paid -16000 Net cash used by financing activities -8000 Decrease in cash and cash equivalents 7000 Beginning balance of cash and cash equivalents 31000 Ending balance of cash and cash equivalents 38000 NOTE; DURING THE YEAR EQUIPMENT WAS ACQUIRED BY ISSUE OF COMMON SHARES HAVING A FAIR VALUE OF 25000 ACCOUNTS: ACCUMULATED DEPRECIATION: Beginning balance 13000 Sale of equipment 10000 Depreciation for the year = 20000-13000+10000 = 17000 10000 30000 Ending balance 20000 BONDS PAYABLE: Beginning balance 19000 Amount retired 22000 Depreciation for the year = 27000-19000+22000 = 30000 22000 49000 Ending balance 27000

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