Answer the 2 questions at the bottom of the page. FreeBird Company, a merchandis
ID: 2504204 • Letter: A
Question
Answer the 2 questions at the bottom of the page.
FreeBird Company, a merchandiser, recently completed its 2013 calendar year. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's balance sheet and income statement follow:
FREEBIRD COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
2013
2012
Assets
Cash
$ 49,200
$ 73,500
Accounts receivable
65,830
51,000
Merchandise inventory
276,000
252,500
Prepaid expenses
1,000
1,600
Equipment
159,000
106,500
Accum. depreciation
FREEBIRD COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
2013
2012
Assets
Cash
$ 49,200
$ 73,500
Accounts receivable
65,830
51,000
Merchandise inventory
276,000
252,500
Prepaid expenses
1,000
1,600
Equipment
159,000
106,500
Accum. depreciation
Explanation / Answer
a. Increase in retained earnings in 2013 = retained earnings in 2013 - retained earnings in 2012 = 188,725 - 126,850 = 61,875
Dividends declared and distributed in 2013 = net income in 2013 - increase in retained earnings in 2013 = 118,475 - 61,875 = $ 56,600
b. Depreciation expense in 2013 = 20,000
However accumulated depreciation went down from 40,000 in 2012 to 31,000 in 2013 (as seen from balance sheet), i.e. a decrease of 9,000
So accumulated depreciation on the sold equipment = 20,000 + 9,000 = 29,000
Net asset value of sold equipment = gross value - accumulated depreciation = 46,500 - 29,000 = 17,500
As this was sold at loss of 5,875, cash received for this equipment sale = 17,500 - 5,875 = $ 11,625
So the answers are dividend = $56,600 and csah for equipment sold = $11,625
Hope this helped ! Let me know in case of any queries.