Question

Add A inventory GAZY CORPORATION Comparative Balance Sheets December 31, 2015 and 2014 PPIIR Suppres Cox go / 20 Cash Rccounts receivable Merchandise inventory Prepaid expenses. Total current asset. Equipment Acoum depreciation Equipmen Total assets... $127450 77.100 240 600 15.100 456.250 61.550 0750 250 100 17 000 410 000 200.000 95,000 5515.000 GATY CORPORATION Income Statement For Wear Ended December 31, 2015 $1.185.000 595,000 590,000 Llabilities and Equity Accounts payable Short-term notes payable Total current l es Long term notes payable Totallaties........ D Cast of poods sold... Gros pret eenses. Depreciso pense Omer expenses. Tot penting expenses $ 38,500 362.350 10.500 101,450 188,550 215.000 200.000 Equity Common stock, 55 per Paid in capital in excess... of par common stock Retained earnings .... Totallaties and evity O rgain posses Loss on sale of equipmen Income before Income taxes expense Nincome (2.100) 186,450 28,350 158.100 30.000 230.000 5607250 125.500 5515.000 Additional Information on Year 2015 Transactions . The loss on the cash sale of equipment was $2,100 (details in b). b. Sold equipment costing $51,000, with accumulated depreciation of $22,850, for $26,050 cash. e Purchased equipment costing S113,250 by paying $43.250 cash and signing a long-term note payable for the balance. d. Borrowed 55,000 cash by signing a short-term note payable. e. Paid 47,500 cash to reduce the long-term notes payable. 1. Issued 3,000 shares of common stock for $15 cash per share. 9. Declared and paid cash dividends of $53,600. Required 1. Prepare a complete statement of cash flows; report its operating activities using the Indirect method. Disclose any noncash investing and financing activities in a note. Check Cash from operating activities, $130.200 Analysis Components 2. Analyze and discuss the statement of cash flows prepared in part 1, giving special attention to the wisdom of the cash dividend payment.

Answer 1

Answer with working notes is given below

Working notes: opening balance Bank (balance paid) Long term note Equipment $200,000 Accumulated Dep $43,250 Bank $70,000 P and L Account _closing balance $313,250 $22,850 $26,050 $2,100 $262,250 $313,250 GAZY CORPORATION Cash Flow Statement under Indirect method Cash flows from Operating Activities Amount Net Income $158,100 Add: Adjustments to reconcile net income to Depreciation $38,600 Loss on sale of Equipment $2,100 Changes in Working Capital Decrease in Accounts Receivable $3,650 Decrease in Merchandise Inventory $10,100 Increase in prepaid expense $1,900 Decrease in Accounts payable ($84,250) Net Cash provided by Operating Activities $130,200 Cash flows from Investing Activities Purchase of Equipment ($43,250) Sale of Equipment $26,050 Net Cash used by Investing Activities ($17,200) Cash flows from Financing Activities Long term notes repaid ($47,500) Short term notes raised $5,000 Issue of common stock $45,000 ($53,600) Net Cash used by Financing Activities ($51,100) Net Cash inflow/(outflow) $61,900 Opening balance of cash $61,550 Closing balance of cash $123,450 Accumulated Depreciation- Equipment Equipment $22,850 Opening Balance $95,000 (Dep on Equip sold) Pand L Account $38,600 Closing balance $110,750 (Depreciation during the year) $133,600 $133,600 Significant non cash transaction Non Cash Investing and Financing Activity Equipment purchased by issue of Long term note payable $70,000 2 Analysis of cash flow statement Cash flow from operating activities is positive mainly driven by Net income Changes in current assets has led to inflow of cash Changes in Current liabilities has led to outflow of cash for Accounts payable Cash from Financing activities is outflow mainly due to repayment of long term notes and payment of dividend to common shareholders. The free cash flows ( Cash flow from Operating activities - investment in fixed assets) is positive during the year. Dividend is declared out of net income for the year