Question

The Pruitt Company’s income statement and comparative balance sheets as of December 31 of 2019 and 2018 follow: PRUITT COMPANY Income Statement For the Year Ended December 31, 2019 Sales Revenue $770,000 Cost of Goods Sold $450,000 Wages and Other Operating Expenses 195,000 Depreciation Expense 22,000 Goodwill Amortization Expense 7,000 Interest Expense 5,000 Income Tax Expense 36,000 Loss on Bond Retirement 5,000 720,000 Net Income $50,000 PRUITT COMPANY Balance Sheets Dec. 31, 2019 Dec. 31, 2018 Assets Cash $8,000 $19,000 Accounts Receivable 43,000 28,000 Inventory 101,000 131,000 Prepaid Expenses 12,000 11,000 Plant Assets 360,000 334,000 Accumulated Depreciation (87,000) (84,000) Goodwill 43,000 52,000 Total Assets $480,000 $489,000 Liabilities and Stockholders’ Equity Accounts Payable $32,000 $28,000 Interest Payable 3,000 7,000 Income Tax Payable 6,000 8,000 Bonds Payable 60,000 100,000 Common Stock 252,000 248,000 Retained Earnings 127,000 98,000 Total Liabilities and Stockholders’ Equity $480,000 $489,000 During the year, the company sold for $15,000 cash old equipment that had cost $34,000 and had $19,000 accumulated depreciation. New equipment worth $60,000 was acquired in exchange for $60,000 of bonds payable. Bonds payable of $100,000 were retired for cash at a loss. A $21,000 cash dividend was declared and paid. All stock issuances were for cash.

Required a. Compute the change in cash that occurred in 2019. b. Prepare a statement of cash flows using the indirect method. a. Change in Cash during 2019 $Answer 11,000 Answer b. Use a negative sign with cash outflow answers.

PRUITT COMPANY Statement of Cash Flows For Year Ended December 31, 2019 Cash Flow from Operating Activities Net Income Answer 50,000 Add (deduct) items to convert net income to cash basis Depreciation Answer 22,000 Goodwill Amortization Answer 7,000 Loss on Bond Retirement Answer 5,000 Accounts Receivable Answer Answer (15,000) Inventory Answer Answer 30,000 Prepaid Expenses Answer Answer (1,000) Accounts Payable Answer Answer 4,000 Interest Payable Answer Answer (4,000) Income Tax Payable Answer Answer (2,000) Cash Flow Provided by Operating Activities Answer 96,000 Cash Flow from Investing Activities Sale of Equipment Answer 15,000 Cash Flow from Financing Activities Retirement of Bonds Payable Answer 0 Issuance of Common Stock Answer 4,000 Payment of Dividends Answer (21,000) Cash Used by Financing Activities Answer 0 NetChange in Cash Answer 0 Cash at Beginning of Year Answer 0 Cash at End of Year Answer 0

Answer 1

PRUITT COMPANY
Statement of Cash Flows
For Year Ended December 31, 2019
Cash Flow from Operating Activities
Net income	50000
Add (deduct) items to convert net income to cash basis
Depreciation	22000
Goodwill Amortization	7000
Loss on Bond Retirement	5000
Increase in Accounts Receivable	-15000
Decrease in Inventory	30000
Increase in Prepaid Expenses	-1000
Increase in Accounts Payable	4000
Decrease in Interest Payable	-4000
Decrease in Income Tax Payable	-2000
Cash Flow Provided by Operating Activities		96000
Cash Flow from Investing Activities
Sale of Equipment		15000
Cash Flow from Financing Activities
Retirement of Bonds Payable ($100000 + $5000)	-105000
Issuance of Common Stock	4000
Payment of Dividends	-21000
Cash Used by Financing Activities		-122000
Net Change in Cash		-11000
Cash at Beginning of Year		19000
Cash at End of Year		8000