Question

ting activity, (3) a finance ation are becoming the aring her statement ets and some additional 226 Chapter 4 Required: Identify each activity as (1) an operating activity, (2) an investing act activity (4) a non-cash activity, or (5) none of the above. Problem 25 The operations of North Shore Motel, a small lodging operation complex. Lu Wong, the owner, has asked for your help in preparin cash flows. She is able to present you with condensed balance sheets and information. North Shore Motel Condensed Balance Sheets December 31, 20X1 and 20X2 20X1 Cash $ 10,000 Accounts Receivable 46,500 Investments Building l a 2,000,000 Equipment 200,000 Accumulated Depreciation (200,000) Total Assets $ 2,086,500 Current Liabilities: Accounts Payable $ 18,000 Mortgage Payable (current) 55,000 Dividends Payable 25,000 Noncurrent Liabilities: Mortgage Payable (long-term) 1,575,000 Note Payable De sido Common Stock 200,000 Retained Earnings 213,500 Total Liabilities and Owners' Equity les and Owners' Equity 1 $ 2,086,500 20,000 20X2 $ 6,000 45,500 25,000 2.000.000 325,000 (250,000 $2,151,000 $ 21,000 55,000 25,000 1,520,000 40.000 300.000 190,500 $ 2.151.500 Additional information: 1. Equipment costing $20,000, depreciated to one half its cost, was sold for $8,00 2. Common stock, purchased as a long-term investment for $5,000, was sold for SS 3. Dividends declared during 20X2 totaled $50,000. 4. Equipment costing $145,000 was purchased during 20X2. 5. Depreciation expense for 20X2 totaled 30,000. 6. Long-term debt of $55,000 was reclassified as current at the end of 20 7. Common stock of $100,000 was sold during 20X2. 8. The North Shore Motel generated net income of $27,000 during 20x2. Required: Prepare the cash from financing activities section of the SCF.

Answer 1

Note:

Dividend payable

To Bank (Bal fig)	50000	By opening balance	25000
To closing bal	25000	By Retained Earnings (trfd)	50000
	75000		75000

Retained Earnings

Opening balance	213500
Less: Dividends	50000
Add: Income CY	27000
Closing balance	190500

The requirement is cash from financing actvities. Let us look into the additional information:

1. Sale of equipment is Cashflow from investing activity.
2. Sale of investments viz common stock is again Cashflow from investing activity.
3. Dividends declared has been dealt in above note.
4. Equipment purchased affects the Cashflow from investing activity.
5. Depreciation affects Cashflow from Operating activity.
6. Reclassification of debt , hence difference of $ 55000 (ie 1375000-1320000) of Mortgage Payable is not any outflow of cash. Moreover such payments after classification as current liability are changes in working capital.Hence, Cashflow from Operating activity.
7. issue of common stock qualifies for Cashflow from Financing activity.
8. Income generated pertains to operating activities. It has been dealt in above note
9. Also note there is item of Notes payable borrowed $ 40000.

So,

Cash flow from financing activities

Issue of Common Stock (7)		+100000
Long term Notes payable borrowed (9)		+40000
Dividends actually paid (Note)		-50000
Total Cash flow from financing activities		+90000