Question

ABC Incorporated manufactures and sells toys. The following was its balance sheet as on December 31^st, 2011.

ASSETS		LIABILITIES AND STOCKHOLDERS EQUITY
Cash	$250,000	Accounts Payable	$120,000
Accounts Receivable	$300,000	Salaries Payable	$80,000
Inventory	$80,000	Dividends Payable	$50,000
Property, Plant and Equipment (Less Accumulated Depreciation, 150,000)	$630,000	Retained earnings	$980,000
Intangible Assets	$62,000	Common Stock	92,000
TOTAL	1,322,000	TOTAL	1,322,000

The following is the relevant information for the year ending 2012.

1. The depreciation on property, plant and equipment for the year 2012 was $20,000
2. The company lent funds worth $120,000 on July 1^st to a supplier. Interest is received on June 30^th of every year. The rate of interest is 10%.
3. ABC incurred expenditures of $25,000 on internally developing a patent. It purchased an additional patent at $30,000.
4. Bought municipal bonds worth $60,000. Interest accrued on these bonds for 2012 (but not paid) was $3,000. Fair value of these bonds was $62,000 on Dec 31^st 2012. ABC reports these bonds at fair value.
5. During the year, the company sold toys for $180,000. The company received 80% cash and the rest remained on account. The cost of these toys sold was $50,000.
6. Raised funds by issuing $100,000 5-year bonds at par on November 1^st 2012 at 6 percent interest per year with interest to be paid on March 31^st every year. On Dec 31^st, 2012, these bonds were trading at $99,000. ABC elects to records these bonds at their fair value.
7. Paid off Salaries payable of $50,000. By December 31^st, 2012, the company had accrued additional outstanding salaries worth $40,000.
8. Warranty costs expected this year are $20,000. Warranty costs actually incurred this year are $5,000. By end of the year, ABC determined that the remaining warranty costs would be incurred in future years.
9. Paid off Accounts payable of $10,000 and dividends payable of $50,000.
10. For this year, dividends declared (but not paid) were $60,000, which will be paid next year (i.e. in 2013).
11. ABC discontinued its pre-school toys division. Property, plant and equipment (book value = $80,000) were sold for $60,000.
12. Tax Rate is 20%

Required:

Create an income statement, statement of retained earnings, balance sheet and cash flow statement for the year ended December 31^st 2012.

Answer 1

Balance Sheet as on 31st December 2012
ASSETS	$	LIABILITIES AND STOCKHOLDERS EQUITY	$
Cash	$204,000	Accounts Payable	$110,000
Accounts Receivable	$336,000	Salaries Payable	$70,000
Inventory	$30,000	Dividends Payable	$60,000
Loan to Supplier	$120,000	Income Tax Payable	$8,200
Interest accrued (Loan to Supplier)	$6,000	Bonds	$99,000
Municipal Bonds	$62,000	Interest accrued on Bonds	$1,000
Interest accrued (Municipal Bonds)	$3,000	Provision for Warranty Cost	$15,000
Property, Plant and Equipment (Less Accumulated Depreciation, 170,000)	$530,000	Retained earnings	$952,800
Intangible Assets	$117,000	Common Stock	92,000
TOTAL	1,408,000	TOTAL	1,408,000

Income Statement
Sales	180000
Other Income:
Fair Value Gain on Municipal Bonds	2000
Fair Value Gain on Bonds Issued by the company	1000
Interest Income from Municipal Bonds	3000
Interest Income from loan to Supplier	6000
	192000
Less:
Depreciation	20000
Change in Inventory of Goods	50000
Interest on Bonds	1000
Salary Expense	40000
Warranty Costs	20000
Loss on Sales	20000
	151000
Less: Income tax	8200
Net Income	32800

Statement of Retained Earnings:
Particulars	$
Opening Balance	980,000
Add: Net Income	32,800
Less: Dividend for the year	60,000
Closing Balance	952,800

Cash Flow Statement
Net Income	32800
Add:
Depreciaiton for the year	20000
Income Tax Payable for the year	8200
Fair Value Gain on Municipal Bonds	-2000
Fair Value Gain on Bonds Issued by the company	-1000
Loss on Sale of Machine	20000
Loan given to Supplier	-120000
Changes in Working Capital:
Accounts Payable	-10000
Salary payable	-10000
Accounts Receivable	-36000
Change in Stock	50000
Interest accrued (Loan to Supplier)	($6,000)
Municipal Bonds	($60,000)
Interest accrued (Municipal Bonds)	($3,000)
Interest on bonds	1000
Change in Warranty provision	15000
	-133800
Cash Flow from Investing Activities:
Sale of Machine	60000
Purchase of Intangibles	-55000
	5000
Cash Flow from Financing Activities:
Dividend paid	-50000
Issuance of Bonds	100000
	50000
Net Change	-46000
Add: Opening Cash Balance	250000
Closing Cash Balance	$204,000