The comparative balance sheet of Pell Company, for 2009 and the preceding year D
ID: 2459184 • Letter: T
Question
The comparative balance sheet of Pell Company, for 2009 and the preceding year December 31, 2008, appears below in condensed form: 2010 2009 Cash Accounts receivable (net) Inventories Investment Equipment Accumulated Depreciation-equipment $45,500 44,000 101,500 $70,000 48,000 103,000 70,000 450,000 (176,000) $565,000 573,200 (141,000) $623,200 Accounts payable Dividends Payable Bonds payable, due 2012 $43,800 3,000 120,000 285,000 55,000 58,200 $565,000 $63,500 Common stock Paid-in capital in excess of par-common stock Retained earnings 325,000 77,500 157,200 $623,200 Sales Cost of merchandise sold Gross profit Operating expenses: S651,000 340,000 311,000 $25,000 69,000 Depreciation expense Other operating expenses Income from operations Other income: 94,000 $217,000 $6,000 Gain on sale of investment Other expense: Interest expense Income before income tax Income tax Net income 8,000 (2.000) $215,000 86,000 $129,000 Additional data for the current year: a. Original cost of fully depreciated equipment, scrapped, no salvage value b. Equipment was purchased for cash c. Bonds payable were retired by payment at their face amount $60,000 183,200 5,000 shares of common stock were issued for cash Cash dividends declared and paid - d. e. 30,000 On the next page, prepare a statement of cash flows. Use the direct method of reporting cash flows from operating activities, include the reconciliation of cash flows from operating activities.Explanation / Answer
Statement of cash flows using the indirect method:
Particulars
Amount
Cash from operating Activities
Net profit
129000
Add: Depreciation
Interest Paid
Income Tax Expense
25000
8000
86000
Less: Gain on Sale of Investments
(6000)
Cash Operating activities before working capital adjustments, and taxes
242000
Working Capital Adjustments
Add:
Decrease in Accounts Receivables (48000-44000)
Decrease in Inventory (103000-101500)
Increase in Accounts Payables (63500-43800)
4000
1500
19700
Cash from operating activities before taxes
267200
Less: Taxes
(86000)
Cash from operating activities
181200
Cash from investing activities
Add: Sale of Investment
70000
Less: Purchase of Equipment
(183200)
Cash from Investing Activities
(113200)
Cash from financing Activities
Add: Issue of Common Stock (325000-285000+77500-55000`)
62500
Less: Dividend paid (30000-3000)
Interest Paid
Bonds redeemed
(27000)
(8000)
(120000)
Cash from financing activities
(92500)
Net Increase / decrease in cash
(24500)
Opening Cash Balance
70000
Closing Cash Balance
45500
Cash Flows from Operating activities using Direct Method:
Particulars
Amount
A
Sales
651000
Add: Decrease in Accounts Receivables
4000
Cash Collections from sales (A)
655000
B
Cost of Goods Sold
340000
Less: Decrease in Inventories
(1500)
Less: Increase in Accounts Payables
(19700)
Cash Payments for purchases (B)
318800
C
Expenses
Operating Expenses
69000
Add: Income Tax Expense
86000
Payments for Expenses (C)
155000
D
Cash Flows from Operating Activities (A-B-C)
181200
Reconciliation of Cash Flows from Operating Activities:
Particulars
Amount
Net Income
129000
Add:
Interest Expense
Depreciation
Decrease in Accounts Receivables
Decrease in Inventories
Increase in Accounts Payables
8000
25000
4000
1500
19700
58200
Less:
Gain on Sale of Investments
6000
(6000)
Cash Flows from Operating Activities
181200
Particulars
Amount
Cash from operating Activities
Net profit
129000
Add: Depreciation
Interest Paid
Income Tax Expense
25000
8000
86000
Less: Gain on Sale of Investments
(6000)
Cash Operating activities before working capital adjustments, and taxes
242000
Working Capital Adjustments
Add:
Decrease in Accounts Receivables (48000-44000)
Decrease in Inventory (103000-101500)
Increase in Accounts Payables (63500-43800)
4000
1500
19700
Cash from operating activities before taxes
267200
Less: Taxes
(86000)
Cash from operating activities
181200
Cash from investing activities
Add: Sale of Investment
70000
Less: Purchase of Equipment
(183200)
Cash from Investing Activities
(113200)
Cash from financing Activities
Add: Issue of Common Stock (325000-285000+77500-55000`)
62500
Less: Dividend paid (30000-3000)
Interest Paid
Bonds redeemed
(27000)
(8000)
(120000)
Cash from financing activities
(92500)
Net Increase / decrease in cash
(24500)
Opening Cash Balance
70000
Closing Cash Balance
45500