Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, h
ID: 2407868 • Letter: M
Question
Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, hammer, and crescent wrench) exclusively through television advertising. The comparative income statements and balance sheets are for the past two years.
Additional Information
The following information regarding the company’s operations in 2018 is available from the company’s accounting records.
Early in the year, the company declared and paid a $4,000 cash dividend.
During the year, marketable securities costing $15,000 were sold for $14,000 cash, resulting in a $1,000 nonoperating loss.
The company purchased plant assets for $20,000, paying $2,000 in cash and issuing a note payable for the $18,000 balance.
During the year, the company repaid a $10,000 note payable, but incurred an additional $18,000 in long-term debt as described in Transaction 3.
The owners invested $15,000 cash in the business as a condition of the new loans described in Transaction 4.
Required:
a. Prepare a worksheet for a statement of cash flows.
b. Prepare a statement of cash flows for 2018 by the indirect method.
MIRACLE TOOL, INC. COMPARATIVE INCOME STATEMENT FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018 2017 2018 Sales $ 500,000 $ 350,000 Less: Cost of goods sold 200,000 140,000 Gross profit on sales $ 300,000 $ 210,000 Less: Operating expenses (including depreciationof $34,000 in 2017 and $35,000 in 2018) 260,000 243,000 Loss on sale of marketable securities –0– 1,000 Net income (loss) $ 40,000 $ (34,000 )
Explanation / Answer
Answer a. Miracle Tool Inc. Worksheet for Statement of Cash Flows For the Year Ended Dec 31, 2018 Balance Sheet Effects Dec 31, 2017 Dr. Changes Cr. Changes Dec 31, 2018 Assets Cash & Cash Equivalents 10,000.00 50,000.00 60,000.00 Marketable Securities 20,000.00 15,000.00 5,000.00 Accounts Receivable 40,000.00 17,000.00 23,000.00 Inventory 120,000.00 2,000.00 122,000.00 Plant & Equipment 300,000.00 20,000.00 35,000.00 285,000.00 Totals 490,000.00 495,000.00 Liabilities: Accounts Payable 50,000.00 23,000.00 73,000.00 Accrued Expenses Payable 17,000.00 3,000.00 14,000.00 Notes Payable 245,000.00 10,000.00 18,000.00 253,000.00 Capital Stock 120,000.00 15,000.00 135,000.00 Retained Earnings 58,000.00 38,000.00 20,000.00 Totals 490,000.00 123,000.00 123,000.00 495,000.00 Cash Effects: Sources Uses Operating Activities: Net Loss 34,000.00 Depreciation 35,000.00 Loss on sale of Marketable Securities 1,000.00 Decrease in Accounts Receivable 17,000.00 Increase in Inventory 2,000.00 Increase in Account Payable 23,000.00 Decrease in Accrued Expenses Payable 3,000.00 Investing Activities: Proceeds from Marketable Securities 14,000.00 Purchase of Plant Assets 2,000.00 Financing Activities: Dividend Paid 4,000.00 Repayment of Notes Payable 10,000.00 Increase in Capital Stock 15,000.00 Sub-Total 105,000.00 55,000.00 Net Increase / decrease 50,000.00 Total 105,000.00 105,000.00 Answer 2. MIRACLE TOOLS INC Statement of Cash Flows (Indirect Method) For the Year ended Dec 31, 2018 Cash Flow from opearating activities: Net Loss (34,000.00) Add/(Less) non cash effects on operating activities Depreciation expense 35,000.00 Loss on sale of Marketable Securities 1,000.00 Decrease in Accounts Receivable 17,000.00 Increase in Inventory (2,000.00) Increase in Account Payable 23,000.00 Decrease in Accrued Expenses Payable (3,000.00) 71,000.00 Net Cash provided by operating activities 37,000.00 Cash flow from Investing Activities Proceeds from Marketable Securities 14,000.00 Purchase of Plant Assets (2,000.00) Cash Flow / (used) from Investing activities 12,000.00 Cash Flow from Financing Activities Cash paid to Notes Payable (10,000.00) Issue of Capital Stock 15,000.00 Cash dividend paid (4,000.00) Cash Flow from Financing Activities 1,000.00 Net Increase / (Decrease) in Cash 50,000.00 Cash balance at the beginning - Dec 31, 2017 10,000.00 Cash balance at the end - Dec 31, 2018 60,000.00