Question

The comparative balance sheets for Oriole Corporation show the following information.

		December 31
		2017		2016
Cash		$33,500		$12,900
Accounts receivable		12,200		9,900
Inventory		12,100		8,900
Available-for-sale debt investments		–0–		3,000
Buildings		–0–		29,600
Equipment		44,700		19,800
Patents		5,000		6,300
		$107,500		$90,400
Allowance for doubtful accounts		$2,900		$4,400
Accumulated depreciation—equipment		2,000		4,400
Accumulated depreciation—building		–0–		6,000
Accounts payable		5,000		3,000
Dividends payable		–0–		5,000
Notes payable, short-term (nontrade)		3,000		4,000
Long-term notes payable		31,000		25,000
Common stock		43,000		33,000
Retained earnings		20,600		5,600
		$107,500		$90,400

Additional data related to 2017 are as follows.

1.		Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500.
2.		$10,000 of the long-term note payable was paid by issuing common stock.
3.		Cash dividends paid were $5,000.
4.		On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,000 taxes).
5.		Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
6.		Cash was paid for the acquisition of equipment.
7.		A long-term note for $16,000 was issued for the acquisition of equipment.
8.		Interest of $2,000 and income taxes of $6,500 were paid in cash.

Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

$15,000 Working Note: 1) Depreciation expense: Accumulated depreciation on equipment sold (11.000 * 40%) Less: Decrease in Accumulated depreciation on equipment Oriole Corporation Statement of cash flows For the year ended December 31, 2017 Cash Flow from operating activities Net income Adjustment to reconcile net income to Depreciation expense Loss on sale of equipment Gain from flood damage Patent amortization Gain on sale of investment Increase in Accounts receivable (Net) Increase in Inventory Increase in Accounts payable $4,400 $2.400 $2,000 $2.000 $4,100 -$8.400 $1,300 -$1,700 -$3.800 -$3,200 $2.000 2) Accounts receivable: Accounts receivable on december 31, 2017 Less: allowance for doubtful accounts $12.200 $2.900 $9,300 -$7.700 $7,300 Accounts receivable on december 31,2016 Less: allowance for doubtful accounts $9.900 $4,400 $5,500 Net cash provided by operating activities Cash flows from investing activities Sale of equipment Purchase of Equipment Proceeds from flood damage Sale of investments Net cash used in investing activities $2.500 -$19.900 $32.000 $4.700 Gain from flood damage Insurance proceeds Add: Taxes Total insurance proceeds (A) $30,000 $2.000 $32.000 $19,3001 Cash flows from financing activities Payment of dividend Payment of short term note payable ($4,000-$3,000) Net cash used in financing activities -$5,000 -$1.000 Beginning building cost Less: Accumulated depreciation on building Book value of building (B) $29.600 $6,000 $23,600 -S6,000 Gain from flood damage (A-B) $8,400 Net increase (decrease) in cash Add: Cash balance at December 31, 2016 Cash balance at December 31, 2017 $20.600 $12.900 $33,500 4) Purchase of equipment: Beginning Equipment Less: Disposal of equipment Add: Acquisition of equipment (against long term note) Supplemental disclosures of cash flow information: Cash paid during the year of Interest Cash paid during the year of Income taxes $19.800 $11,000 $8.800 $16,000 $24.800 $44.700 $19.900 $2.000 $6,500 Ending Equipment Purchase of Equipment ($44,700 - $24,800) Noncash Investing and Financing Activities Retired Notes Payable by issuing common stock Purchase equipment by issuing Notes Payable $10,000 $16,000 $34,500