Question

The comparative balance sheets for Windsor Corporation show the following information. Cash Accounts receivable Inventory Available-for-sale debt investments Buildings Equipment Patents December 31 2020 2019 $33,700 $13,200 12,100 9,900 12.000 9,100 -0 3,000 -0 29,500 45,000 19,800 5,000 6,100 $107,800 $90,600 Allowance for doubtful accounts Accumulated depreciation-equipment Accumulated depreciation-building Accounts payable Dividends payable Notes payable, short-term (nontrade) Long-term notes payable Common stock Retained earnings $3,100 $4,500 2,000 4,500 -0 6,100 5,000 3,000 -0- 4,900 2.900 4,000 31,000 25,000 43,000 33,000 20.800 5,600 $107,800 $90,600 Additional data related to 2020 are as follows. 1. Equipment that had cost $11,100 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $4.900. 4. On January 1, 2020, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,200 (net of $2,100 taxes). 5. Debt investments (available-for-sale) were sold at $1,800 above their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,400 were paid in cash.

Answer 1

Solution:

Windsor Corporation

Statement of Cash Flows

For the Year Ended December 31

Cash flow from operating activities:
Net income		$15,200 ($20,800 - $5,600)
Adjustments to reconcile net income to:
Net cash provided by operating activities
Depreciation expenses	$1,940 ($2,000 - $4,500 + [$11,100 × 40%)
Patent amortization	$1,100 ($6,100 - $5,000)
Loss on sale equipment	$4,160 ($11,100 × 60%) - $2,50)
Gain from flood damage ($29,500 - $6,100 - $30,200 - 2,100)	($8,900)
Gain on sale of investment	($1,800)
Increase in accounts receivable ($9,900 - $12,100 + $3,100 - $4,500)	($3,600)
Increase in inventory	($2,900)
Increase in accounts payable	$2,000
		-$8,000
Net cash provided by operating activities		$7,200
Cash flow from operating activities:
Sale of investment	$4,800 ($3,000 + $1,800)
Proceeds from flood damage of building	$32,300 ($30,200 + $2,100)
Sale of equipment	$2,500
Purchase of equipment ($19,800 - $45,000 - $11,100 + $16,000)	($20,300)
Net cash used by investing activities		$19,300
Cash flow from financing activities
Payment of short term note payable	($1,100
Payment of dividends	($4,900)
Net cash provided by financing activities		($6,000)
Net increase in cash		$20,500
Cash and cash equivalent at beginning of period		$13,200
Cash and cash equivalent at the end of period		$33,700
Supplimental disclosure of cash flow information
Cash paid during the year for interest		$2,000
Cash paid during the year for income tax		$6,400
Non cash financing and investing activities
Long term note payable was paid by issuing common stock		$10,000
Equipment acquired by issuing long term note		$16,000
		$34,400

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