Attached are the income statement and statement of stockholders’ equity for Varn
ID: 2581975 • Letter: A
Question
Attached are the income statement and statement of stockholders’ equity for Varney Corp for the year ended 12/31/2014 and the comparative balance sheet information at 12/31/2013 and 12/31/2014. The following additional information is provided:
During 2014 Varney purchased land and a building through a $200,000 cash purchase. There were no disposals of operating assets during 2014. The building is the only depreciable operating asset that Varney owned during 2014
During 2014, Varney issued 5,000 shares of its own common stock for $50,000
During 2014, Varney repurchased 2,000 shares of its own common stock for $18,000
The other operating expenses were paid in full during 2014
During 2014, $2,000 of dividends were paid to stockholders
An equity statement is not shown because all relevant information to the statement of cash flows has been provided
Required:
Prepare a statement of cash flows for Varney Corp. for the year ended 12/31/2014 using the “indirect” method of presenting operating cash flows.
Varney Corp.
Income Statement
Year Ended 12/31/2014
Revenues and Gains:
Sales Revenue
$1,118,000
Expenses and Losses:
Cost of Goods Sold
$ 614.600
Salaries and Wages Expense
206,800
Rent Expense
9,000
Depreciation Expense
4,000
Other Operating Expenses
123,180
Interest Expense
2,000
963,580
Net Income
$ 158,420
Varney Corp.
Comparative Balance Sheet Information
12/31/2013 & 12/31/2014
Assets:
12/31/2013
12/31/2014
Change
Cash
$ 85,800
$136,900
$ +51,100
Accounts Receivable
73,500
115,520
+42,020
Inventory
40,000
15,400
- 24,600
Prepaid Rent
3,000
0
-3,000
Operating Assets (Net)
0
196,000
+196,000
Total Assets
$202,300
$463,820
$+261,520
Liabilities and Stockholders’ Equity:
Accounts Payable
$ 51,500
$120,000
$ +68,500
Salaries & Wages Payable
900
6,000
+ 5,100
Interest Payable
500
0
- 500
Notes Payable
50,000
50,000
0
Paid-in Capital
75,000
125,000
+50,000
Retained Earnings
24,400
180,820
+156,420
Treasury Stock
0
(18,000)
-18,000
Total Liabilities & Stockholders’ Equity
$202,300
$463,820
$+261,520
Varney Corp.
Income Statement
Year Ended 12/31/2014
Revenues and Gains:
Sales Revenue
$1,118,000
Expenses and Losses:
Cost of Goods Sold
$ 614.600
Salaries and Wages Expense
206,800
Rent Expense
9,000
Depreciation Expense
4,000
Other Operating Expenses
123,180
Interest Expense
2,000
963,580
Net Income
$ 158,420
Varney Corp.
Comparative Balance Sheet Information
12/31/2013 & 12/31/2014
Assets:
12/31/2013
12/31/2014
Change
Cash
$ 85,800
$136,900
$ +51,100
Accounts Receivable
73,500
115,520
+42,020
Inventory
40,000
15,400
- 24,600
Prepaid Rent
3,000
0
-3,000
Operating Assets (Net)
0
196,000
+196,000
Total Assets
$202,300
$463,820
$+261,520
Liabilities and Stockholders’ Equity:
Accounts Payable
$ 51,500
$120,000
$ +68,500
Salaries & Wages Payable
900
6,000
+ 5,100
Interest Payable
500
0
- 500
Notes Payable
50,000
50,000
0
Paid-in Capital
75,000
125,000
+50,000
Retained Earnings
24,400
180,820
+156,420
Treasury Stock
0
(18,000)
-18,000
Total Liabilities & Stockholders’ Equity
$202,300
$463,820
$+261,520
Explanation / Answer
Details
Net
Cash Flow from Operating Activities
Net Profit before tax
158,420
Add: Non Cash and Non Operating Expenses
Depreciation
4,000
Interest Expense
2,000
Operating profit before Working Capital changes
164,420
Add: Increase in Current Liabilities And decrease in Current Assets
Decrease in Inventories
24,600
Decrease In prepaid rent
3,000
Increase in Accounts Payable
68,500
Increase in Salaries and wages payable
5,100
Less: Decrease in Current Liabilities And Increase in Current Assets
Increase in Accounts Receivables
(42,020)
Decrease In Interest payable
(500)
Operating profit before income tax
223,100
Cash Flow from Operating Activities (A)
223,100
Cash Flow from Investing Activities
Purchase of Land and Building
(200,000)
Cash Used in Investing Activities (B)
(200,000)
Cash Flow from Financing Activities
Issue of Shares(5,000 Shares@$10 each)
50,000
Increase-in-treasury Stock
(18,000)
Dividend Paid
(2,000)
Interest Paid
(2,000)
Cash Flow from in Financing Activities ( C )
28,000
Increase in Cash Flow (A+B+C)
51,100
Opening Cash
85,800
Closing Cash
136,900
Details
Net
Cash Flow from Operating Activities
Net Profit before tax
158,420
Add: Non Cash and Non Operating Expenses
Depreciation
4,000
Interest Expense
2,000
Operating profit before Working Capital changes
164,420
Add: Increase in Current Liabilities And decrease in Current Assets
Decrease in Inventories
24,600
Decrease In prepaid rent
3,000
Increase in Accounts Payable
68,500
Increase in Salaries and wages payable
5,100
Less: Decrease in Current Liabilities And Increase in Current Assets
Increase in Accounts Receivables
(42,020)
Decrease In Interest payable
(500)
Operating profit before income tax
223,100
Cash Flow from Operating Activities (A)
223,100
Cash Flow from Investing Activities
Purchase of Land and Building
(200,000)
Cash Used in Investing Activities (B)
(200,000)
Cash Flow from Financing Activities
Issue of Shares(5,000 Shares@$10 each)
50,000
Increase-in-treasury Stock
(18,000)
Dividend Paid
(2,000)
Interest Paid
(2,000)
Cash Flow from in Financing Activities ( C )
28,000
Increase in Cash Flow (A+B+C)
51,100
Opening Cash
85,800
Closing Cash
136,900
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