Question

III. Statement of Cash Flows: Comparative balance sheets of Shawnee Inc. as of December 31, 20x8 and 20x7 and information relating to activities for the year 20x8 are presented below: 12/31/x7 Cash Accounts Receivable Merchandise Inventory Long-term Investments Property & Equipment (Cost) Accumulated Depreciation Intangible Assets 12/31/x8 $71,200 69,500 29,000 22,300 99,500 (19,000) 7,500 280,000 $33,700 60,000 24,000 37,500 75,000 (11,500) 8,000 226,700 Accounts Payable Long-Term Note Payable Common Stock Additional Paid-in Capital Retained Earnings 33,500 26,000 35,000 117,000 68,500 280,000 27,000 30,000 25,000 100,000 44,700 226,700 Additional data: dimit Net income for the year was $44,800. Cash dividends declared during the year were $21,000. Long-term investments that cost $20,000 were sold during the year for $24,000. Equipment that cost $3,600 on which depreciation of $800 had accumulated was sold for $2,200. No other PP&E was sold during the year. The amortization of intangible assets amounted to $500. si Required: Prepare the statement of cash flow of Shawnee Inc. for the year 20x8 (all three sections required) using the indirect method for calculating cash flow from operations. (Hint: All items appearing in the cash flow statement may not be specifically mentioned in the additional data. Prepare T-accounts for non-current assets and liabilities and find missing numbers that will appear on the cash flow statement.)

Answer 1

Shawnee Inc. Statement of Cash flows For the year ended December 31, 20X8 Cash flows from operating activities $ Net income 44,800 Adjustment to reconcile net income to net cash provided by operating activities Depreciation expense - Property & Equipment Amortization of intangible assets Gain on sale of long-term investment (24,000- 20,000) Loss on sale of property & equipment 8,300 500 (4,000) 600 (9,500) (5,000) Increase in Accounts receivable (69,500 60,000) Increase in Merchandise inventory (29,000 24,000) Increase in Accounts payable (33,500 27,000) 6,500 Net Cash flows from operating activities (a) 42,200 Cash flows from Investing activities Sale of equipment Sale of long-term investment Purchase of equipment 2,200 24,000 (28,100) (4,800) Purchase of long-term investment Net cash flows from investing activities (b) (6,700) Cash flows from financing activities Repayment of long-term note payable (26,000- 30,000) (4,000) 27,000 (21,000) Issuance of common stock Payment of Dividend Net cash flows from financing activities (c) 2,000

Net Increase in cash (a+b+c) $ 37,500 33,700 Cash balance, 12/31/x7 Cash balance, 12/31/x8 71,200 Working Notes 1) Depreciation expense Accumulated depreciation- 12/31/X8 19,000 Add: Accumulated depreciation on assets sold 800 (11,500) Accumulated depreciation- 12/31/X7 Depreciation expense 8,300 2) Cost of Equipment sold Less: Accumulated depreciation Book value of equipment sold 3,600 (800) 2,800 Sale proceeds (2,200) Loss on sale of equipment 600 3) Property plant and equipment as on 12/31/x8 Add: Cost of equipment sold Less: Property, plant and equipment as on 12/31/X7 99,500 3,600 (75,000) Purchase of equipment 28,100 4) Long-term investment 12/31/x8 22,300 Add: cost of investment sold 20,000 (37,500) Less: Long-term investment 12/31/x7 Purchase of Investment 4,800

5) Issuance of common stock Common stock -12/31/X8 Additional paid in capital 12/31/x8 35,000 117,000 Common stock - 12/31/X7 (25,000) (100,000) Additional paid in capital 12/31/X7 Issuance of common stock 27,000 6) Dividend Payment Retained earnings 12/31/X7 44,700 Add: Net Income 44,800 (68,500) Less: Retained earnings 12/31/x8 Dividend payment 21,000