Question

The balance sheet accounts of Rockwall Corporation at the beginning and end of 2016 are:

	31-Dec-16	1-Jan-16
Cash	$99,435	$110,700
Accounts Receivable	$424,600	$380,900
Inventory	$635,740	$576,475
Prepaid Expenses	$20,000	$12,000
Investment in subsidiary	$200,000	$0
Held to Maturity Debt Securities	$16,460	$14,850
Land	$100,000	$100,000
Buildings	$525,000	$400,000
Equipment	$381,000	$290,000
Patents	$86,000	$70,000
Trademarksb	$25,000	$35,000
Bond Discount and issue costs	$1,165	$6,075
Total Debits	$2,514,400	$1,996,000
Accounts payable	$534,000	$508,000
Income Taxes payable	$68,000	$34,500
Salaries and wages payable	$73,500	$12,900
Allowance for doubtful accounts	$25,000	$23,000
Accumulated depreciation - buildings	$248,000	$230,000
Accumulated depreciation - equipment	$160,000	$103,000
Long-term notes payable	$75,000	$75,000
Bonds payable	$400,000	$300,000
Premium on bonds payable	$7,762	$0
Common stock	$150,000	$125,000
Paid-in capital in excess of par-common stock	$568,000	$418,000
Retained earnings	$205,138	$166,600
Total credits	$2,514,400	$1,996,000

You also have the following information:

1. On November 1, 2016, 25,000 shares of $1 par stock were sold for $175,000.
2. A patent was purchased for $31,000
3. During the year, equipment that had a cost basis of $26,400 and on which there was accumulated depreciation of $5,800 was sold for $15,000. No other plant assets were sold during the year.
4. The 10%, $300,000 40-year bonds were dated and issued on January 2, 2003. Interest was payable on June 30 and December 31. They were sold originally at 97. These bonds were retired at 101 plus accrued interest on May 31, 2016.
5. The 6%, $400,000 20-year bonds were dated January 1, 2016, and were sold on May 31 at 102 plus accrued interest. Interest is payable semiannually on June 30 and December 31. Expense of issuance was $1,200.
6. Rockwall Corporation acquired 60% control in Jones Company on January 2, 2016, for $146,000. The income statement of Jones Company for 2016 shows a net income of $90,000.
7. Extraordinary repairs to buildings of $12,600 were charged to Accumulated Depreciation – Buildings.
8. Interest paid in 2016 was $31,000 and income taxes paid were $38,000.
9. Net income for the year totaled $76,538.

Instructions

1. From the information given, prepare a statement of cash flows using the indirect method. The company uses straight-line amortization for bond interest.

2. Using the details of your cash flow statement analyze the activities of Rockwall Corporation during 2016. Limit: 1 page double spaced with one inch margins.

Answer 1

Rockwell Corporation
Cash Flow Statement
			31 December 2016
Cash flows from operating activities
Net profit ( Loss) before tax			76,538
Adjustment for
Depreciation and amortisation			75,000
Amortisation of patent			15,000
Taxes paid			(38,000)
Operating cash flow before working capital changes			1,28,538
Adjustment for:
Increase / (decrease) in short term liabilities			1,22,100
(Increase)/Decrease in other current assets			(1,10,965)
Cash generated from operations			1,39,673
Taxes paid			-
Net cash from operating activities			1,39,673
Cash flows from investing activities
Sale of Equipment			15,000
Purchase of Patent			(31,000)
Purchase of Fixed Assets			(2,21,000)
Investment in Subsidiary			(1,46,000)	(60%of 90000)
Income accued in subsidiary			(54,000)
Net cash used in investing activities			(4,37,000)
Cash flows from financing activities
Proceeds from Issue of Shares at Premium			1,75,000
Bond accruals			(1,610)
Issue of Bond			1,00,000
Bond discount cost			4,910
Premium payabel on Bond			7,762
Net cash from financing activities			2,86,062
Net increase / (decrease) in cash and cash equivalents (A+B+C)			(11,265)
Cash and cash equivalents at the beginning of the year			1,10,700
Cash and cash equivalents at the end of the year			99,435
			99,435

Workings
		01.Jan.16
	31.Dec.16
Cash	99,435	1,10,700		(11,265)	Cash
Accounts Receivable	4,24,600	3,80,900		43,700	CA
Inventory	6,35,740	5,76,475		59,265	CA
Prepaid Expenses	20,000	12,000		8,000	CA
Investment in subsidiary	2,00,000	-		2,00,000	INV
Held to Maturity Debt Securities	16,460	14,850		1,610	FIN
Land	1,00,000	1,00,000		-
Buildings	5,25,000	4,00,000		1,25,000	INV
Equipment	3,81,000	2,90,000		91,000	INV
Patents	86,000	70,000		16,000	INV
Trademarksb	25,000	35,000		(10,000)	INV
Bond Discount and issue costs	1,165	6,075		(4,910)	FIN
Total Debits	25,14,400	19,96,000		5,18,400
Accounts payable	5,34,000	5,08,000		26,000	CL
Income Taxes payable	68,000	34,500		33,500	CL
Salaries and wages payable	73,500	12,900		60,600	CL
Allowance for doubtful accounts	25,000	23,000		2,000	CL
Accumulated depreciation - buildings	2,48,000	2,30,000		18,000	DEP
Accumulated depreciation - equipment	1,60,000	1,03,000		57,000	DEP
Long-term notes payable	75,000	75,000		-
Bonds payable	4,00,000	3,00,000		1,00,000	FIN
Premium on bonds payable	7,762	-		7,762	FIN
Common stock	1,50,000	1,25,000		25,000	FIN
Paid-in capital in excess of par-common stock	5,68,000	4,18,000		1,50,000	FIN
Retained earnings	2,05,138	1,66,600		38,538	PROFIT AFTER TAX
Total credits	25,14,400	19,96,000		5,18,400