Question

I. Condensed financial data of Mennan Company appear below: MENNAN COMPANY Comparative Balance Sheet December 31 2010 2009 Assets Cash $ 61,000 $ 35,000 Accounts receivable 75,000 53,000 Inventories 118,000 132,000 Prepaid expenses 21,000 25,000 Investments 100,000 75,000 Plant assets 325,000 250,000 Accumulated depreciation _(65,000) _(60.000) Total $635,000 $510,000 Liabilities and Stockholders' Equity Accounts payable $ 98,000 $ 75,000 Accrued expenses payable 24,000 24,000 Bonds payable 120,000 160,000 Common stock 275,000 170,000 Retained earnings 118.000 81.000 Total $635,000 $510,000 MENNAN COMPANY Income Statement For the Year Ended December 31, 2010 Sales $470,000 Less: Cost of goods sold $310,000 Operating expenses (excluding depreciation) 50,000 Depreciation expense 17,000 Income taxes 20,000 Interest expense 18,000 Loss on sale of plant assets 418,000 Net income $ 52.000 3,000

Answer 1

Statement of Cash Flows - Indirect Approach
	Amount in $	Amount in $
Net income		$             52,000
Cash flows from operating activities
Adjustments for reconcile the net income to:
Depreciation	$             17,000
Loss on Sales of plant assets	$                3,000
Increase in account receivable	$            -22,000
Decrease in inventory	$             14,000
Decrease in Prepaid expenses	$                4,000
Increase on account payable	$             23,000
		$             39,000
Net cash from operating activities		$             91,000
Cash flows from investing activities
Purchase of investment	$            -25,000
Purchase of plant	$        -1,00,000
Sales of old plant	$             10,000
Net cash used in investing activities		$        -1,15,000
Cash flows from Financing activities
Dividend Paid	$            -15,000
Issue of Common Stock	$             65,000
Net cash used in financing activities		$             50,000
Net increase in cash and cash equivalents		$             26,000
Add :Cash and cash equivalents at beginning of period		$             35,000
Cash and cash equivalents at end of period		$             61,000
Notes: 1
Dividend Calculation
Net Profit =	$             52,000
Add: Opening retained earning	$             81,000
Less: Closing retained earnings	$          1,18,000
Dividend paid	$             15,000