Question

Kay Wing, Inc., prepared the following balance sheet at December 31, 2016. Balance Sheet as of December 31, 2016 Cash Accounts receivable Inventory Long-term investments Land Plant and equipment (net) Total assets Accounts payable Taxes payable Bonds payable Capital stock Retained earnings Total liabilities and stockholders' equity $ 65,000 37,000 70,000 20,000 39,000 109,000 $340,000 $ 33,000 4,000 80,000 90,000 133,000 $340,000 The following occurred during 2017 1. $15,000 in cash and a $35,000 note payable were exchanged for land valued at $50,000. 2. Bonds payable (maturing in 2021) in the amount of $30,000 were retired by paying $28,000 cash. 3. Capital stock in the amount of $40,000 was issued at par value. 4. The company sold surplus equipment for $10,000. The equipment had a book value of $14,000 at the time of the sale. 5. Net income was $35,500. 6. Cash dividends of $5,000 were paid to the stockholders. 7. 100 shares of stock (considered short-term investments) were purchased for $8,300. 8. A new building was acquired through the issuance of $75,000 in bonds. 9. $12,000 of depreciation was recorded on the plant and equipment. 10. At December 31, 2017, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes payable were unchanged from 2016. Required: 1. Prepare a statement of cash flows for 2017. 2. Prepare the December 31, 2017, balance sheet for Kay Wing, Inc.

Answer 1

Answer -

1. Answer -

Statement of cash flows for 2017:

Kay wing, Inc.
Statement of Cash Flows
For the Year Ended 12/31/2017
Cash flows from operating activities:
Net income		$35500
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	$12000
Gain on retirement of bonds	($2000)
Loss on sale of equipment	$4000
Increase in accounts receivable	($4500)
Increase in inventory	($3000)
Decrease in accounts payable	($7500)	($1000)
Cash flow provided by operating activities		$34500
Cash flows from investing activities:
Purchase of land	($15000)
Sale of equipment	$10000
Purchase of short-term investment	($8300)
Net cash used in investing activities		($13300)
Cash flows from financing activities:
Issuance of capital stock	$40000
Retirement of bonds	($28000)
Payment of cash dividends	($5000)
Net cash provided by financing activities		$7000
Net increase in cash		$28200
Cash at beginning of year		$65000
Cash at end of year		$93200

Calculation:

1. Gain on retirement of bonds = $30000 - $28000 = $2000

2 .Loss on sale of equipment = $14000 - $10000 = $4000

3. Increase in accounts receivable:

= Accounts receivable (at December 31, 2016) - Accounts receivable (at December 31, 2017)

= $37000 - $41500 = ($4500)

4. Increase in inventory:

= Inventory (at December 31, 2016) - Inventory (at December 31, 2017)

= $70000 - $73000 = ($3000)

5. Decrease in accounts payable:

= Accounts payable (at December 31, 2017) - Accounts payable (at December 31, 2016)

= $25500 - $33000 = ($7500)

6. Purchase of new building through issuance of $75000 in bonds is a non-cash financing transaction. Therefore, that wouldn't disclosed in statement of cash flows.

2. Answer -

Balance sheet:

Kay wing, Inc.
Balance Sheet
December. 31, 2017
Cash	$93200
Accounts receivable	$41500
Short-term investment	$8300
Inventory	$73000
Long-term investments	$20000
Land	$89000
Plant and equipment (net)	$158000
Total assets	$483000
Accounts payable	$25500
Taxes payable	$4000
Note payable	$35000
Bonds payable	$125000
Capital stock	$130000
Retained earnings	$163500
Total liabilities and stockholders equity	$483000

Calculation:

1. Land:

= Land (at December 31, 2016) + Purchase of land

= $39000 + $50000 = $89000

2. Plant and equipment (net):

= Plant and equipment (net) (at December 31, 2016) - Sale of equipment (book value) - Depreciation + Purchase of building

= $109000 - $14000 - $12000 + $75000

= $158000

3. Bonds payable:

= Bonds payable (at December 31, 2016) - Retirement of bonds + Issuance of bonds

= $80000 - $30000 + $75000

= $125000

4. Capital stock:

= Capital stock (at December 31, 2016) + Issuance of capital stock

= $90000 + $40000

= $130000

5. Retained earnings:

= Retained earnings (at December 31, 2016) + Net income - Dividend paid

= $133000 + $35500 - $5000

= $163500