Question

The following is the comparative balance sheet as of December 31, 2019 and 2018 and the income statement for the year ended December 31, 2019 for Lynbrook Inc.:

Lynbrook Inc. Comparative Balance Sheet December 31, 2019 and 2018

Assets: 2019 2018 Cash $ 39 $ 81 Accounts receivable 640 588 Inventory 650 610 Total current assets 1,329 1,279 Property, Plant & Equipment 1,505 1484 Less: Accumulated depreciation (770) (651) Net Property, Plant & Equipment 735 833 Total Assets $ 2,064 $ 2,112 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 260 $ 160 Accrued liabilities 180 170 Income tax payable 77 72 Total current liabilities 517 402 Bonds payable 415 600 Total liabilities 932 1,002 Shareholders' Equity: Common stock 145 145 Retained earnings 987 965 Total stockholders' equity 1,132 1,110 Total Liabilities and Stockholder's Equity $ 2,064 $ 2,112

Lynbrook Inc. Income Statement For the year ended December 31, 2019 Sales $ 3,700 Cost of goods sold 2,540 Gross Margin 1,160 Selling and administrative expenses 880 Net operating income 280 Other income and expenses Gain on sale of equipment 2 Income before taxes 282 Income tax expense 112 Net Income $ 170

The accounting department at Lynbrook provided the additional information for you on the next page. 1. The company sold equipment that had an original cost of $12 million and accumulated depreciation of $7 million. The cash proceeds from the sale were $7 million. The gain on the sale was $2 million. 2. The company purchased equipment for cash during the year. 3. The company did not issue any new bonds during the year. 4. The company paid a cash dividend during the year. 5. The company did not issue or repurchase any shares of common stock during the year.

Required: Prepare a complete statement of cash flows for the year (operating, investing, and financing). Use the indirect method to prepare the operating activities section of the statement.

Answer 1

Lynbrook Inc. Statement of Cash Flow For the Month Ended December 31, 2019 Cash flows from Operating Activites: Net Income 170 Adjustment to reconcile net income to net cash provided by operating activities Depreciation expense Gain on sale of equipment Increase in Accounts receivable (640-588) 126 (2) (52) (40) Increase in Inventory (650 610) Increase in Accounts payable (260 160) Increase in Accrued liabilities (180 170) Increase in Income tax payable (77-72) Net Cash flows from Operating Activities (a) Cash Flows from Investing Activities Sale of equipment Purchase of equipment Net Cash used by Investing Activities (b) Cash Flows from Financing Activities 100 10 5 317 7 (33) (26) (185) (148) Ritrement of Bonds (415-600) Payment of dividends Net Cash flows from Financing Activities (c) (333) Net decrease in cash (atb+c) Cash Balance, 12/31/18 (42) 81 Cash Balance, 12/31/19 39

Working Notes 1) Calculation of depreciation expense Accumulated depreciation as on 12/31/19 Add: Accumulated depreciation on equipment sold Accumulated depreciation as on 12/31/18 770 7 (651) Depreciation expense 126 2) Purchase of equipment Plant & Equipment as on 12/31/19 Add: Cost of equipment sold Plant & Equipment as on 12/31/18 1,505 12 (1,484) Purchase of Equipment 33 3) Payment of Dividends Retained earnings as on 12/31/18 Add: Net Income 965 170 Retained earnings as on 12/31/19 (987) Cash Dividend payment 148