Question

Q3.
a) Sleep Country began 2019 with accounts receivable, inventory, and prepaid expenses totalling $65,000. At the end of the year, Sleep Country had a total of $78,000 for these current assets. At the beginning of 2019, Sleep Country owed current liabilities of $42,000, and at year-end, current liabilities totalled $40,000.

Net income for the year was $80,000. Included in net income were a $4,000 gain on the sale of land and depreciation expense of $9,000.

Show how Sleep Country should report cash flows from operating activities for 2014. Sleep Country uses the indirect method.





b) ​Identify the effects—both the direction and the dollar amount—of the following assumed transactions on the total shareholders’ equity of a large corporation. Each transaction is independent.
a) Declaration of cash dividends of $80 million
b) Payment of the cash dividend declared
c) 10% stock dividend. Before the dividend, 69 million common shares were outstanding;
d) the market price was $7.625 at the time of the dividend.
e) A 50% stock dividend. Before the dividend, 69 million common shares were outstanding;
f) the market price was $13.75 at the time of the dividend.
g) Sale of 600 common shares for $5.00 per share
h) A 3-for-l stock split. Prior to the split, 69 million common shares were outstanding.

Answer 1

Sleep Country

Statement of Cash Flow (Indirect Method)

Particulars	Amount	Amount
Cash Flow from Operating Activities:= Net Incocme		$80000
Add(Deduct)noncash effect on operating income
Depreciation Expenses	9000
Gain on sale of Land	(4000)
Dercrease in Accounts receivable,inventory and prepaid expenses	(65000)
Increase in Accounts Payable	40000	(20000)
Net cash provided by operating activities		$ 60000
Cash Flow from Investing Activities:	-	-
Net Cash provided by Investing Activities		$60000
Cash flow from financial activities:
Proceeds from issuing stock at 10 % stock dividends	7.625
Proceeds from issuing stock at 50 % stock dividends	13.75	$21.375
Dividends on common (600@ $5.00 per share)	(3000)
Repayment of long term loan (69 Million)	(6900000)	(6903000)
Net (increase/decrease) in cash		(6842978.625)
Cash Dividends		8000000
Cash balance as on 31st December 2014		1157021.375