Question

Problem 18 The operations of the Great Rae Café, a small food service operation, are becoming more complex. Natalie Rae, the owner, has asked for your help in understanding the condensed balance sheets and the additional information provided. The Great Rae Café Condensed Balance Sheets December 31, 20X1 and 20X2 20X1 Cash $ 15,000 Accounts Receivable 15,000 Inventory 25,000 Investments (noncurrent) 110,000 Equipment 240,000 Accumulated Depreciation Total Assets $385,000 Current Liabilities: Accounts Payable $ 18,000 S Note Payable Dividends Payable 5,000 Noncurrent Liabilities: Note Payable 152,000 Common Stock 200,000 Treasury Stock (40,000) Retained Earnings 40,000 Total Liabilities and Owners' Equity $385,000 20X2 $ 12,000 14,000 20,000 105,000 320,000 (50,000) $421,000 (20,000) V 10,000 oldav $ 10,000 10,000 10,000 171,000 200,000 (50,000) 70,000 $421,000

Answer 1

Prob 18)
	REQUIREMENT:	SOLUTION:
1)	Dividend declared 20X2	Cl Dividend payable + Dividend paid - Op Dividend payable
		10000+30000-5000 = 35000
2)	Note paid during 20X2	Current Note Payable on 20X1 = 10000
3)	Impact on cash of change in inventory during 20X2	Increase in Cash by 5000 (ie. 25000 - 20000)
4)	Impact on cash of change in AP during 20X2	Decrease in Cash by 8000 (ie. 18000 - 10000)
5)	Net Income 20X2	Cl. Retained earnings + Dividend declared - Op. Retained earnings
		70000 + 35000 - 40000 = 65000
6)	Investments purchased during 20X2	Cl Investment+ Cost of Investment sold 20X2 - Op. Investment
		105000 + 10000 - 110000 = 5000
7)	Depreciation expense 20X2	Cl Acc. Depreciation - Op Acc. Depreciation
		50000 - 20000 = 30000
8)	Working capital at the beginning of 20X2	Opening CA - Opening CL
		(15000+15000+25000) - (18000+10000+5000) = 22000
9)	Cash recd. On sale of marketable sec. during year	Sec. cost + Gain on sale = 5000 + 2000 = 7000
10)	Treasury stock sold during 20X2	NIL , but purchased Treasury Stock of 10000 (ie. 50000-40000)