Question

A comparative balance sheet and income statement is shown for Cruz, Inc. CRUZ, INC. Comparative Balance Sheets December 31, 2015 2015 2014 Assets Cash $ 94,800 $ 24,000 Accounts receivable, net 41,000 51,000 Inventory 85,800 95,800 Prepaid expenses 5,400 4,200 Total current assets 227,000 175,000 Furniture 109,000 119,000 Accum. depreciation—Furniture (17,000 ) (9,000 ) Total assets $ 319,000 $ 285,000 Liabilities and Equity Accounts payable $ 15,000 $ 21,000 Wages payable 9,000 5,000 Income taxes payable 1,400 2,600 Total current liabilities 25,400 28,600 Notes payable (long-term) 29,000 69,000 Total liabilities 54,400 97,600 Equity Common stock, $5 par value 229,000 179,000 Retained earnings 35,600 8,400 Total liabilities and equity $ 319,000 $ 285,000 CRUZ, INC. Income Statement For Year Ended December 31, 2015 Sales $ 488,000 Cost of goods sold 314,000 Gross profit 174,000 Operating expenses Depreciation expense $ 37,600 Other expenses 89,100 126,700 Income before taxes 47,300 Income taxes expense 17,300 Net income $ 30,000 1. Assume that all common stock is issued for cash. What amount of cash dividends is paid during 2015? 2. Assume that no additional notes payable are issued in 2015. What cash amount is paid to reduce the notes payable balance in 2015?

Answer 1

Solution :

(a) Amount of cash dividends is paid

= Beginning retained earnings + net income - Ending retained earnings

= $8,400 + $30,000 - $35,600

= $2,800

(b) cash amount is paid to reduce the notes payable

= Beginning notes payable - Ending notes payable

= 69,000 - 29,000

= $40,000