Question

Q1-6: Michelle has asked for your help in preparing her statement of cash flows for 2016 (Only operating activities). She is able to present you with condensed balance sheets and some additional information as below: The Caesars Inn Condensed Balance Sheets December 31, 2015 and 2016 2015 $9.000 25,000 11,000 170,000 (40.000) $175,000 2016 8,000 24.000 15,000 220,000 (50.000) $217,000 Description Cash Accounts Receivable Investments Equipment Accumulated Depreciation Total Assets Current Liabilities: Accounts Payable Mortgage Payable (current) Dividend Payable Noncurrent Liabilities: Mortgage Payable Common Stock Retained Earnings Total Liabilities and Owners' Equity $6,000 14.000 15,000 $10,000 12.000 5,000 105,000 25,000 10.000 $175,000 $125,000 35,000 30.000 $217,000 Additional Information 1) Equipment costing $25,000 and fully depreciated (to $0) was sold for $10,000. 2) Long-term investments costing $12,000 were sold for $12,000. 3) Income before gain on the sale of equipment for 2016 totaled $30,000. The firm's average tax rate is 20 percent. 1. a. Determine Net Income for the Caesars Inn. What is your answer? $4,000 b. $32,000 c. $220,000 d. $40,000 2. Determine whether Michelle has gain or loss from sale of equipment. How much is the gain/loss? a. Gain, $15,000 b. Gain, $10,000 c. Loss, $15,000 d. Loss, $10,000 3. Determine whether Michelle has gain or loss from sale of investment. How much is the gain/loss? a Gain, $12,000. b. Loss, $12,000. Neither Gain nor Loss, SO d. Gain, $5,000 Loss, $5,000. 4. You want to present the information about accounts receivable when preparing the statement of cash flow for the Caesars Inn. Which one is correct? Decrease in accounts receivable $1,000 b. Decrease in accounts receivable $1,000) c. Increase in accounts receivable $1,000 d. Increase in account receivable = $1,000) 5. a. You want to present the information about accounts payable when preparing the statement of cash flow for the Caesars Inn. Which one is correct? Decrease in accounts payable $4,000 b. Decrease in accounts payable $4,000) Increase in accounts payable $4,000 d. Increase in account payable $4,000) c. 6. Determine the Net Cash flows from Operating Activities for the fiscal year ended 12/31/16 for the Caesars Inn. What is your answer? a. $125,000 b. $45,000 c. $450,000 d. $770,000 e. $77,000

Answer 1

1.
Net Income = ($30000+10000) x 80% = $32000
Answer is b. $32,000

2.
Answer is b. Gain, $10000

3.
Answer is c. Neither Gain nor loss, $0

4.
Answer is a. Decrease in Accounts Receivable $1000

5.
Answer is c. Increase in Accounts Payable $4000

6. Cash from Operating activities comes out to $62000, but there is no option for this.

Depreciation = $50000-40000+25000 = $35000

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$           32,000
Adjustments
Depreciation	$           35,000
Gain on sale of equipment	$          (10,000)
Change In current assets & Liabilities
Decrease in Accounts Receivable	$             1,000
Increase in Accounts payable	$             4,000
Total Adjustments		$           30,000
Net Cash provided by operating activities		$           62,000

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