Problem 12-8A Warner Company Income Statement For the Year Ended December 31, 20
ID: 2548867 • Letter: P
Question
Problem 12-8A Warner Company Income Statement For the Year Ended December 31, 2017 Presented below ae the finaial statements of Warner Company. Sales revenue Cost of goods sold Gross proi Selling expenses $242,000 175,000 67,000 Warner Company Comparative Balarn December 31 Assets Cash Accounts receivable Inventory Property, plant, and equipment Accumulated depreciation Total 2017 2016 20,000 Administrative expenses 14,000 20,000 78,000 (24,000) $18,000 $ 35,000 24,000 43,000 3,000 40,000 8,000 32,000 6,000 20,000 28,000 60,000 (32,000) Income from operations Interest expense Income before income taxes Income tax expense Net income $111,000 $108,000 Liabilities and Stockholders Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $19,000 7,000 17,000 18,000 50,000 $111,000 15,000 8,000 33,000 14,000 38,000 $108,000 Additional data 1. Depreciation expense was $17,500. 2. Dividends declared and paid were $20,000 3. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had accumulated depreciation of $9,500 at the time of sale Further analysis reveals the following 1. Accounts payable pertain to merchandise suppliers. 2. All operating expenses except for depreciation were paid in cash. 3. All depreciation expense is in the selling expense category 4. All sales and purchases are on account.Explanation / Answer
a) Warner Company Statement of Cash Flows For the Year Ended December 31, 2017 Cash flows from operating activities Cash receipts from customers (1) $236,000.00 Less cash payments: To suppliers (2) $179,000.00 For operating expenses ($24000 - 17500) $6,500.00 For interest $3,000.00 For income taxes(8000+(8000-7000) $9,000.00 $197,500.00 Net cash provided by operating activities $38,500.00 Cash flows from investing activities Sale of equipment $8,500.00 Cash flows from financing activities Issuance of ordinary shares (18000 -14000) $4,000.00 Redemption of bonds (33000 -17000) -$16,000.00 Payment of dividends -$20,000.00 Net cash used by financing activities -$32,000.00 Net decrease in cash $15,000.00 Cash at beginning of period $20,000.00 Cash at end of period $35,000.00 (1)Cash receipts from customers Sales $242,000.00 Deduct: Increase in accounts receivable (20000 - 14000) -$6,000.00 Cash receipts from customers $236,000.00 (2)Cash payments to suppliers Cost of goods sold $175,000.00 Add: Increase in inventory (28000 -20000) 8000 Cost of purchases $183,000.00 Deduct: Increase in accounts payable (19000-15000) -4000 Cash payments to suppliers $179,000.00 b) Free cash Flow Net cash provided by operating activities $38,500.00 Less: capital expenditure 0 Less: Dividend paid -$20,000.00 Free cash flow $18,500.00