Question

Dair Company's income statement and comparative balance sheets follow. DAIR COMPANY Income Statement For Year Ended December 31, 2011 Sales $ 700,000 Cost of goods sold $ 440,000 Wages and other operating expenses 95,000 Depreciation expense 21,000 Amortization expense 6,000 Interest expense 10,000 Income tax expense 36,000 Loss on bond retirement 5,000 613,000 Net income $87,000 DAIR COMPANY Balance Sheets Dec 31, 2011 Dec 31, 2010 Assets Cash $ 22,000 $18,000 Accounts receivable 54,000 48,000 Inventory 103,000 109,000 Prepaid expenses 12,000 10,000 Plant assets 360,000 336,000 Accumulated depreciation (86,000) (84,000) Intangible assets 44,000 50,000 Total assets $ 509,000 $487.000 Liabilities and Stockholders' Equity Accounts payable $ 31,000 $ 26,000 Interest payable 3.000 7,000 Income tax payable 6,000 8,000 Bonds payable 60,000 120,000 Common stock 252,000 228.000 Retained earnings 157,000 98,000 Total liabilities and equity $ 509,000 $487,000 During 2011, the company sold for $17,000 cash old equipment that had cost $36,000 and had $19,000 accumulated depreciation. Also in 2011, new equipment worth $60,000 was acquired in exchange for $60,000 of bonds payable, and bonds payable of $120,000 were retired for cash at a loss. A $28,000 cash dividend was declared and paid in 2011. Any stock issuances were for cash.

Answer 1

DAIR COMPANY STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 2011 Net Cash Flow from Operating Activities Net Income 87,000 Add (Deduct) items to convert Net income to Cash Basis Depreciation 21,000 Amortization expense 6,000 Loss on Bond Retirement 5,000 Accounts Receivable Increase (54,000 - 48,000) (6,000) Inventory Decrease (103,000 -109,000) 6,000 Prepaid Insurance Increase (12,000 - 10,000) (2,000) Accounts payable Increase (31,000 - 26,000) 5,000 Interest payable Decrease (3,000 - 7,000) (4,000) Income tax payable Decrease (6,000 - 8,000) (2,000) Net Cash Provided by Operating Activities Cash Flows from Investing Activities Sale of Equipment Cash Flows from Financing Activities Retirement of Bonds payable (125,000) Issuance of common stock (252,000 - 228,000) 24,000 Payment of Dividends (28,000) Net Cash Used by Financing Activities Net Increase in Cash Cash at Beginning of Year Cash at End of Year 116,000 17,000 (129,000) 4,000 18,000 22,000

Working Notes: Retirement of Bonds payable Beginning Balance, Bonds payable Add: Issuance of bonds exchange of new equipment Ending Balance, Bonds payable Cost Bonds retirement Add: Loss on bond retirement Retirement of Bonds payable 120,000 60,000 (60,000) 120,000 5,000 125,000