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