Problem:
Z Corporation had the following balance sheets for 2014 and 2015:
31/12/2014 31/12/2015
Cash………………………………………………………………………….
$3,000
$5,000
Accounts Receivable………………………………………………..
15,000
11,300
Merchandise……………………………………………………………
25,000
11,500
Prepaid Insurance……………………………………………………
1,000
1,200
Land…………………………………………………………………………
40,000
34,000
Machinery……………………………………………………………….
60,000
95,000
Accumulated Depreciation……………………………………..
(20,000)
(23,000)
Accounts Payable……………………………………………………
15,000
9,500
Bonds Payable (Long-term)……………………………………
6,000
13,500
Common Stock……………………………………………………….
80,000
80,000
Retained Earnings…………………………………………………..
23,000
32,000
Additional information from the income statement and T-accounts indicate the following:
1.
2.
3.
4.
5.
Net income was $20,000.
Dividends paid were $11,000 (cash).
Land carried at $6,000 was sold at a gain of $1,000 for $7,000.
Depreciation expense was $6,500.
Machinery was purchases for $40,000; machinery with a cost of $5,000 and accumulated
depreciation of $3,500 was sold at its book value of $1,500.
6. Bonds were issued for cash.
The change in cash for the year according to the balance sheet was $2,000. Let’s do a complete
statement and see if we come up with this figure.
CASH FROM OPERATIONS (INDIRECT METHOD)
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
CASH FROM INVESTMENT ACTIVITIES
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
CASH FROM FINANCE ACTIVITIES
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………
Solution:
Z Corporation had the following balance sheets for 2014 and 2015:
31/12/2014 31/12/2015
Cash………………………………………………………………………….
$3,000
$5,000
Accounts Receivable………………………………………………..
15,000
11,300
Merchandise……………………………………………………………
25,000
11,500
Prepaid Insurance……………………………………………………
1,000
1,200
Land…………………………………………………………………………
40,000
34,000
Machinery……………………………………………………………….
60,000
95,000
Accumulated Depreciation……………………………………..
(20,000)
(23,000)
Accounts Payable……………………………………………………
15,000
9,500
Bonds Payable (Long-term)……………………………………
6,000
13,500
Common Stock……………………………………………………….
80,000
80,000
Retained Earnings…………………………………………………..
23,000
32,000
Additional information from the income statement and T-accounts indicate the following:
1.
2.
3.
4.
5.
Net income was $20,000.
Dividends paid were $11,000 (cash).
Land carried at $6,000 was sold at a gain of $1,000 for $7,000.
Depreciation expense was $6,500.
Machinery was purchases for $40,000; machinery with a cost of $5,000 and accumulated
depreciation of $3,500 was sold at its book value of $1,500.
6. Bonds were issued for cash.
The change in cash for the year according to the balance sheet was $2,000. Let’s do a complete
statement and see if we come up with this figure.
CASH FROM OPERATIONS (INDIRECT METHOD)
Net income……………………………………………………………………………….. 20,000
Gain on sale of land……………………………………………………………………
1,000
Depreciation Expense………………………………………………………………..
6,500
Decrease in Accounts Receivable………………………………………………
3,700
Decrease in Merchandise………………………………………………………….
13,500
Increase in prepaid Insurance……………………………………………………
(200)
Decrease in Accounts Payable………………………………………………….. (5,500)
Net cash flow from operating activities……………………….
37,000
CASH FROM INVESTMENT ACTIVITIES
Decrease in Land………………………………………………………………………..
Increase in Machinery………………………………………………………………..
Decrease in Machinery………………………………………………………………
Net cash flow from investing activities………………………….
CASH FROM FINANCE ACTIVITIES
Dividends paid……………………………………………………………………………
Issued bonds payable………………………………………………………………..
7,000
(40,000)
1,500
(31,500)
(11,000)
7,500
Net cash flow from financing activities………………………….
Change in cash………………………………………………………………
(3,500)
$2,000