Jensen Company Comparative Balance Sheet Accounts As of December 31 Cash Account

Question

Jensen Company Comparative Balance Sheet Accounts As of December 31 Cash Accounts Receivable Merchandise Inventory Investments (Available-for-sale $80,000 145,000 75,000 55,000 70,000 145,000 40,000 $31,000 130,000 61,000 85,000 48,000 145,000 25,000 Buildings Land Totals $10,000 21,000 37,000 70,000 I 2.000 62,000 310,000 88,000 s 8,000 14,000 28,000 60,000 10,000 70,000 260,000 95.000 Allowance for Doubtful Accounts Accumulated Depreciation- -Equipment Accumulated Depreciation-Building Accounts Payable Income Taxes Payable Long-Term Notes Payable Common Stock Retained Eamings Totals 610,000 Additional data: I. Equipment that cost $10,000 and was 40% depreciated was sold in 2017. 2. Cash dividends were declared and paid during the year 3. Common stock was issued in exchange for land. 4. Investments that cost $35,000 were sold during the year There were no write-offs of uncollectible accounts during the year Jensen's 2017 income statement is as follows. Sales Less: Cost of goods sold Gross profit Less: Operating expenses (includes dep. exp. and bad debt exp.) Income from operations Other revenues and expenses $950,000 600,000 350,000 250,000 100,000 Gain on sale of investments S15,000 Loss on sale of equipment Income before taxes Income taxes Net income 12,000 112,000 Required (I) Prepare a statement of cash flows using the indirect method. (2) Prepare the operating activity section of the statement of cash flows using direct method Hint: When land was purchased through issuance of common stock, the company had a non-cash transaction. You should not include $15,000 cash outflows in the investing activities nor $15,000 cash inflows in financing activities. However, you need to add a note at the end of the statement of cash flows as follows: Purchase of land through issuance of common stock See p. 1360 of your textbook for additional explanations. S15.000

Explanation / Answer

Indirect method:

workings:

Direct method:

Workings:

Cash flow statement Particulars Amount Amount Income before taxes              1,12,000 Adjustments to reconcile net income: Loss/(gain) on sale of investment               (15,000) Loss/(gain) on sale of equipment                    3,000 Bad debt expense                    2,000 Depreciation                  20,000 (Increase)/Decrease in receivables               (15,000) (Increase)/Decrease in inventory               (14,000) Increase/(Decrease) in accounts payables                  10,000 Taxes paid               (43,000) Net cash from/(used in) operating activities                  60,000       60,000 Cash flow from investing activities: Sale of investments                  50,000 Purchase of investment                  (5,000) Purchase of equipment               (32,000) Sale of equipment                    3,000 Net cash from/(used in) investing activities                  16,000       16,000 Cash flow from financing activities: Dividend paid               (74,000) Long term note payable paid                  (8,000) Issue of stock                  35,000 Net cash from/(used in) financing activities               (47,000)     (47,000) Net change in cash       29,000 Add: Opening cash balance       51,000 Closing cash balance       80,000

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