Exercise 23-14 Pharoah Inc., a greeting card company, had the following statemen
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Question
Exercise 23-14 Pharoah Inc., a greeting card company, had the following statements prepared as of December 31, 2017 PHAROAH INC. COMPARAT BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016 12/31/17 12/31/16 Cash Accounts receivable Short-term debt investments (available-for-sale) Inventory Prepaid rent Equipment Accumulated depreciation-equipment Copyrights Total assets $6,000$7,000 50,600 18,100 59,700 4,000 152,800 128,900 62,600 35,200 39,600 5,000 (34,900) (24,800) 45,900 49,800 $312,200 $293,300 Accounts payable Income taxes payable Salaries and wages payable Short-term loans payable Long-term loans payable Common stock, $10 par Contributed capital, common stock Retained earnings Total liabilities & stockholders' equity $45,900 $39,900 6,000 3,900 10,000 68,500 100,000 100,000 30,000 35,000 $312,200 $293,300 4,000 8,100 8,000 60,500 30,000 55,700 PHAROAH INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2017 Sales revenue Cost of goods sold Gross profit Operating expenses Operating income Interest expense Gain on sale of equipment Income before tax Income tax expense Net income $337,675 175,500 162,175 119,500 42,675 $11,300 2,000 9,300 33,375 6,675 $26,700 Additional information 1. Dividends in the amount of $6,000 were declared and paid during 2017 2. Depreciation expense and amortization expense are included in operating expenses. 3. No unrealized gains or losses have occurred on the investments during the year 4. Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2017Explanation / Answer
the following is the required statement of cash flows:
note:
calculation of annual depreciation :
opening accumulated depreciation........................... = $24,800.
less: depreciation on sold equipment ($20,000*70%) =>$14,000
adjusted opening depreciation......................................=>$10,800.
closing depreciation = $34,900.
current year depreciation = $34,900 - $10,800
=>$24,100.
amortisation of patents = opening balance - closing balance
=>$49,800 - $45,900
=>$3,900
total depreciaton and amortisation = $24,100 + 3,900 =>$28,000.
note 2:
opening value of equipment at cost = $128,900.
less cost of equipment sold.............=($20,000)
adjusted opening value of equipment at cost = $108,900.
value of equipment purchased = $152,800 - 108,900 =>$43,900.
note3:
equipment cost less 70% depreciation = $20,000 - 70% =>$6,000.
add: gain on sale of equipment .....................................=>$2,000.
total cash received from sale of equipment..................=>$8,000.
cash flow from operating activities: Net income $26,700 Adjustements to reconcile net income to depreciation (see note) $24,100 amortisation (see note) $3,900 increase in accounts receivable ($12,000) gain on sale of investment ($2,000) decrease in inventory (39,600 - 59,700) 20,100 increase in prepaid rent (5000 - 4000) (1,000) increase in accounts payable (45,900 - 39,900) 6,000 income taxes payable (4,000 -6,000) decrease (2,000) increase in salaries and wages payable (8,100 - 3,900) 4,200 $41,300 cash flow from operating activities $68,000 cash flow from investing activities purchase of equipment (see note) ($43,900) sale of equipment (see note 3) $8,000 purchase of available for sale investments (35,200 - 18,100) ($17,100) net cash flow from investing activities ($53,000) cash flow from financing activities repayment of short term loan (2,000) repayment of long term loan (68,500 - 60,500) (8,000) payment of dividends (6,000) net cash used by financing activities ($16,000) net cash flows from all activities (68,000 - 53,000-16,000) ($1,000) add: opening cash on 12/31/16 7,000 closng cash balance on 12/31/17 $6,000Related Questions
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