The balance sheet accounts of Rockwall Corporation at the beginning and end of 2
ID: 2587181 • Letter: T
Question
The balance sheet accounts of Rockwall Corporation at the beginning and end of 2016 are:
31-Dec-16 1-Jan-16
Cash $99,435 $110,700
Accounts Receivable $424,600 $380,900
Inventory $635,740 $576,475
Prepaid Expenses $20,000 $12,000
Investment in subsidiary $200,000 $0
Held to Maturity Debt Securities $16,460 $14,850
Land $100,000 $100,000
Buildings $525,000 $400,000
Equipment $381,000 $290,000
Patents $86,000 $70,000
Trademarks $25,000 $35,000
Bond Discount and issue costs $1,165 $6,075
Total Debits $2,514,400 $1,996,000
Accounts payable $534,000 $508,000
Income Taxes payable $68,000 $34,500
Salaries and wages payable $73,500 $12,900
Allowance for doubtful accounts $25,000 $23,000
Accumulated depreciation - buildings $248,000 $230,000
Accumulated depreciation - equipment $160,000 $103,000
Long-term notes payable $75,000 $75,000
Bonds payable $400,000 $300,000
Premium on bonds payable $7,762 $0 Common stock $150,000 $125,000
Paid-in capital in excess of par-common stock $568,000 $418,000
Retained earnings $205,138 $166,600
Total credits $2,514,400 $1,996,000
You also have the following information: 1. On November 1, 2016, 25,000 shares of $1 par stock were sold for $175,000.
2. A patent was purchased for $31,000
3. During the year, equipment that had a cost basis of $26,400 and on which there was accumulated depreciation of $5,800 was sold for $15,000. No other plant assets were sold during the year.
4. The 10%, $300,000 40-year bonds were dated and issued on January 2, 2003. Interest was payable on June 30 and December 31. They were sold originally at 97. These bonds were retired at 101 plus accrued interest on May 31, 2016.
5. The 6%, $400,000 20-year bonds were dated January 1, 2016, and were sold on May 31 at 102 plus accrued interest. Interest is payable semiannually on June 30 and December 31. Expense of issuance was $1,200.
6. Rockwall Corporation acquired 60% control in Jones Company on January 2, 2016, for $146,000. The income statement of Jones Company for 2016 shows a net income of $90,000.
7. Extraordinary repairs to buildings of $12,600 were charged to Accumulated Depreciation – Buildings.
8. Interest paid in 2016 was $31,000 and income taxes paid were $38,000.
9. Net income for the year totaled $76,538.
Instructions a) From the information given, prepare a statement of cash flows using the indirect method. The company uses straight-line amortization for bond interest.
Explanation / Answer
Cash flow statement Operating activities Net Income for the year 76538 Add:Loss on sale of equipment (26400-5800-15000) 5600 Add: Depn.Buildings (18000-12600) 5400 Add: Depn. Equipment(160000+5800-103000) 62800 Add: Bad debt expense(25000-23000) 2000 Add: Amortisation of trade marks(35000-25000) 10000 Less: Unrealised holding gain--HTM securities(16460-14850) -1610 Add: Loss on early retirement of bond(workings) 9075 Add: Income tax new provision 71500 Add: Amortisation of Patents(70000+31000-86000) 15000 Add: Amortisation of bond issuance costs(1200/20*7/12) 35 Less: Income of subsidiary accrued(60%*90000) -54000 Adjusted Net income 202338 Changes in working capital: Less:Increase in Accounts receivables (424600-380900) -43700 Less:Increase in Inventory (635740-576475) -59265 Less:Increase in Prepaid expenses (20000-12000) -8000 Add:Increase in Accounts payable (534000-508000) 26000 Add: Increase in Salaries and wages payable(73500-12900) 60600 Cash flows generated from operating activities 177973 Investing Activities Purchase of patents -31000 Sale of equipment 15000 Purchase of buildings(525000-400000-12600) -112400 Purchase of equipment(381000+26400-290000) -117400 Cash flow used in Investing activities -245800 Financing activities Issue of common stock (+APIC) 175000 Retirement of $ 300000 bond -315500 Issue of bonds(as per workings) 416567 Acquisition of 60% share in Jones -146000 Dividends paid(166600+76538-205138) -38000 Cash generated from financing activities 92067 Net cash used 24240 Add: Beginning cash balance 110700 Ending cash balance 134940 99435 35505 Workings: Cash(300000*97%) 291000 Discount on bond payable 9000 Bond payable 300000 Bond payable 300000 Interest expense(300000*10%*5/12) 12500 Loss on early retirement of bond 9075 Cash (300000*101/100)+12500 315500 Discount on bond payable 6075 Cash (400000*102/100)+(400000*6%*5/12) 417767 Issuance costs 1200 Premium on bonds Payable(400000*2%)-5mths prem.233) 7767 Bonds payable 400000 Interest payable 10000 Cash 1200
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