Question

II. Statement of Cash Flows (25 points) The following is Grafton Corporation's comparative balance sheets for 2018 and 2017: $ $ Cash Accounts receivable Inventories Property, plant, and equipment Accumulated depreciation Investment in Elkins Corporation Loan receivable Total assets December 31, 2018 400,000 564,000 925,000 1,653,500 (582,500) 152,500 135.000 $ 3.247.500 2017 350,000 584,000 857,500 1,483,500 (520,000) 137,500 $ 2.892,500 $ $ 477,500 25,000 45,000 Accounts payable Income taxes payable Dividends payable Capital lease obligation Capital stock, common, $1 par Additional paid-in capital Retained earnings Total liabilities and stockholders' equity 507,500 15,000 40,000 200.000 250,000 750,000 1,485,000 250,000 750,000 1,345,000 $ 3,247.500 $ 2,892.500 Additional information: On December 31, 2017, Grafton acquired 25 percent of Elkins Corporation's common stock for $137,500. On that date, the carrying value of Elkins' not assets and liabilities (which approximated fair value) was $550,000. Elkins reported income of $60,000 for the year ended December 31, 2018. No dividend was paid on Elkins' common stock during the year. 2. During 2018, Grafton loaned $150,000 to Beckley Company, an unrelated entity. Beckley made the first semi-annual principal payment of $15,000, plus interest at 10 percent, on October 1, 2018 3. On January 2, 2018, Grafton sold equipment costing $30,000, with a carrying value of $17,500, for $20,000 cash. 4. On January 2, 2018, Grafton entered into a capital lease for an office building. The present value of the annual rental payments is $200,000, which equals the fair value of the building. Grafton made the first lease payment of $30,000 when due on January 2 2019 5. Grafton's net income for 2014 was $180,000 6. Grafton declared and paid cash dividends for 2018 and 2017 as follows: Declared Paid Amount 2018 Dec. 15, 2018 Feb. 28, 2019 $ 40,000 2017 Dec. 15, 2017 Feb. 28, 2018 $ 45,000

Answer 1

G Corporation Statement of cash flows For the year ended December 31, 2018 Particular Amount Amount Operating activity Net Income $180,000 7 Add: Income tax Provision $15,000 Adjustments for. Depriciation $75,000 Interest Income -$7,5001 Gain from sale of equipment -$2,500 Gain on Investment in Elkis Corporation -$15,000 Changes in Working Capital $50,000 Increase In Trade payables $30.000 Increase in Inventories -$67,500 Decrease in Account Receivable $20,000 -$17.500 18 Less: Income Tax Paid -$25.000 Net Cash Flow from Operations $202,500 Investing activities Sale value of equipment $20.000 Loan given to Beckley compnay -$150,000 Repayment of loan Receivalbe $15,000 Interest received $7,500 Net cash flow from investing activities -$107,500 Financing activities Dividends paid $45.000 Net cash flow form financing activites -$45,000 Net increase in cash $50,000 Cash at beginning of the year $350,000 Cash at end of the year $400,000

Working note:

G Corporation Statement of cash flows For the rear ended December 31, 2018 Particular Amount Amount Operating activity Net Income 1180000 Add: Income tax Provision 15000 Adjustments for Depriciation 175000 Interest Income - 7500 Gain from sale of equipment -2500 Gain on Investment in Elkis Corporation -15000 Changes in Working Capital =SUM(C9:C12) Increase In Trade payables 30000 Increase in Inventories -67500 Decrease in Account Receivable 20000 =SUM(C14:C16) 18 Less: Income Tax Paid -25000 Net Cash Flow from Operations =SUM(D6:D18) Investing activities Sale value of equipment 20000 Loan given to Beckley compnay -150000 Repayment of loan Receivalbe 15000 Interest received 7500 Net cash flow from investing activities =SUM(C21:C24) Financing activities Dividends paid 45000 Net cash flow form financing activites =SUM(C27) Net increase in cash =SUMD19:D28) Cash at beginning of the year 350000 Cash at end of the year =D29+D30

Note No. 1 Particular Amount Income Taxation a/c Amount Particular Opening Balance 25000.00 Profit & Loss a/c (Provision for Taxation) 15000.00 40000.00 Total 25000.00 15000.00 Income taxes pald Closing Balance Total 40000.00 Note No. 2 Particular Sale of Equipment Accumalated Depreciation Amount Particular 12500 Opening Balance Depreciation 582500.00 595000 Amount 520000.00 75000.00 Closing Balance Sale value of Equipment 595000.00 Note No. 3 Interest Income Particular Loan Amount Iinterest Amount Time 150000 6 Months 7500

Note No. + Gain on Sale of Equipment Particular Sale Value of Euipment Carrying Value Gain on Sale of Equipment Amount 20000 17500 2500 Note No. 5 Gain on Investment Particular Net Income of Elkis Corporation Percent of holding Gain on Investment Arnount 60000 2596 15000 Note No. 6 Particular Dividend Pavable a/c Amount Particular Opening Balance +5000.00 Retained Earnings Amount 45000.00 40000.00 Dividend Paid Closing Balance Total 40000.00 85000.00 Total 85000.00