Following are the data for Larson Co. for the year ending December 31 Year 2, an
ID: 2559565 • Letter: F
Question
Following are the data for Larson Co. for the year ending December 31 Year 2, and the preceding year ended December 31 Year 1 and the indirect method of reporting cash flows from operating activities. In addition to the balance sheet data, assume that: Equipment costing $125,000 was purchased for cash. Equipment costing $85,000 with accumulated depreciation of $65,000 was sold for $15,000. The stock was issued for cash. The only entries in the retained earnings account were net income of $51,000 and cash dividends declared of $13,000. 1 Year 2 Year 1 2 Assets 3 Cash $100,000.00 $78,000.00 4 Accounts receivable (net) 78,000.00 85,000.00 5 Inventories 101,500.00 90,000.00 6 Equipment 410,000.00 370,000.00 7 Accumulated depreciation (150,000.00) (158,000.00) 8 Total Assets $539,500.00 $465,000.00 9 Liabilities and stockholders’ equity 10 Accounts payable (merchandise creditors) $58,500.00 $55,000.00 11 Cash dividends payable 5,000.00 4,000.00 12 Common stock, $10 par 200,000.00 170,000.00 13 Paid-in capital in excess of par—common stock 62,000.00 60,000.00 14 Retained earnings 214,000.00 176,000.00 15 Total liabilities and stockholders’ equity $539,500.00 $465,000.00
Explanation / Answer
CASH FLOW STATEMENT OF LARSON CO. FOR THE YEAR ENDING December 31 Details Amount in $ Cash Flows from Operating Activities: Net income before Dividend 51,000 Adjustment for Reconcile Net Income to net cash provided from Operations Add: Loss on sale of Equipment (See note) 5,000 Add: Depreciation-Equipment (See note) 57,000 Less: Increase in Inventory -11,500 Add: Decrease in Accounts receivable 7,000 Add: Increase in Acconts Payable 3,500 Net Cash inflows from Operating Activities 112,000 Cash Flows from Investing Activities: Outflow from Purchase of equipment -125,000 Inflow from sale of equipment 15,000 Net cash outflow from Investing Activities -110,000 Cash flows from Financing Activities Dividend paid (See note) -12,000 Issuance of Common Stock in excess of par value(See note) 32,000 Net Cash inflows from Financing Activities 20,000 Net Cashinflow during the year 22,000 Add: Opening balance of cash and cash Equivalents 78,000 Closing balance of cash and cash Equivalents 100,000 Working Note: 1. Computation of Depreciation charged: Opening Balance of Accumulated Depreciation 158000 Less: Depreciation on Equipment sold 65000 Less: Closing Balance of Accumulated Depreciation 150000 Depreciation charged 57,000 2. Computation of loss on Disposal of Equipment: Original cost of Equipment sold 85,000 Less: Accumulated Depreciation 65,000 Less: Sale value of equipment 15,000 Loss on disposal of aEquipment 5,000 3. Computation of Dividend paid Opening balance of Dividend payable 4,000 Add: Dividend declared during the year 13,000 Less: Closing Balance of Dividend payable 5,000 Dividend paid during the year 12,000 4. Computation of Cash received from Common Stock Issuance Closing Balance of Common Stock+Paid in Capital 262,000 (200,000+62,000) Less:Opening balance of Common Stock+Paid in Capital 230,000 (170,000+60,000) Cash received on issuance 32,000