The comparative balance sheet of Pell Company, for 2008 and the preceding year e
ID: 2350804 • Letter: T
Question
The comparative balance sheet of Pell Company, for 2008 and the preceding year ended December 31, 2007, appears below in condensed form:Year Year
2008 2007
Cash $ 53,000 $ 50,000
Accounts receivable (net) 37,000 48,000
Inventories 108,500 100,000
Investments ...... 70,000
Equipment 573,200 450,000
Accumulated depreciation-equipment (142,000) (176,000)
$629,700 $542,000
Accounts payable $ 62,500 $ 43,800
Bonds payable, due 2010..... 100,000
Common stock, $10 par 325,000 285,000
Paid-in capital in excess of par--
Common stock 80,000 55,000
Retained earnings 162,200 58,200
$629,700 $542,000
The income statement for the current year is as follows:
Sales $625,700
Cost of merchandise sold 340,000
Gross profit $285,700
Operating expenses:
Depreciation expense $26,000
Other operating expenses 68,000 94,000
Income from operations $191,700
Other income:
Gain on sale of investment $ 4,000
Other expense:
Interest expense 6,000 (2,000)
Income before income tax $189,700
Income tax 60,700
Net income $129,000
Additional data for the current year are as follows:
(a) Fully depreciated equipment costing $60,000 was scrapped, no salvage, and equipment was purchased for $183,200.
(b) Bonds payable for $100,000 were retired by payment at their face amount.
(c) 5,000 shares of common stock were issued at $13 for cash.
(d) Cash dividends declared and paid $25,000.
Prepare a statement of cash flows, using the indirect method of reporting cash flows from operating activities.
Explanation / Answer
SOLVE: The comparative balance sheet of Pell Company, for 2008 and the preceding year ended December 31, 2007, appears below in condensed form: Year Year 2008 2007 Cash $53,000 $50,000 Accounts receivable (net) (11,000) 37,000 48,000 Inventories 8,500 108,500 100,000 Investments (70,000) --------- 70,000 Equipment 123,000 573,200 450,000 Accumulated depreciation-equipment (142,000) (176,000) $629,700 $542,000 Accounts payable 18,700 $ 62,500 $ 43,800 Bonds payable, due 2010 (100,000) ---------- 100,000 Common stock, $10 par 65,000 405,000 340,000 Retained earnings 129,000 – 25,000 => 162,200 58,200 $629,700 $542,000 Sales $625,700 Cost of merchandise sold 340,000 Gross profit $285,700 Operating expenses: Depreciation expense $26,000 Other operating expenses 68,000 94,000 Income from operations $191,700 Other income: Gain on sale of investment $ 4,000 Other expense: Interest expense 6,000 (2,000) Income before income tax $189,700 Income tax 60,700 Net income $129,000 Additional data for the current year are as follows: (a) Fully depreciated equipment costing $60,000 was scrapped, no salvage, and new equipment was purchased. Prepare a statement of cash flows.