Question

11. Diane’s balance sheets as of December 31, 2018 and 2019 are presented below:

                                                                                      2018                     2019     

Cash                                                                               $190,000               $246,000

Accounts receivable                                                         125,000                 63,000

Prepaid expenses                                                               50,000                 27,000

Property, plant, and equipment – at cost                            450,000               698,000

Accumulated depreciation                                               (110,000)               (154,000)

TOTAL ASSETS                                                            $705,000               $880,000

Accrued expenses payable                                                $120,000               $100,000

Unearned revenues                                                            45,000                 10,000

Dividends payable                                                                         0                   15,000

Long-term debt                                                               200,000               150,000

Common stock                                                                  50,000                 60,000

Additional paid-in-capital                                                 250,000               380,000

Retained earnings                                                               40,000               165,000

TOTAL LIABILITIES & SE                                            $705,000               $880,000

SELECTED OTHER INFORMATION:

1. During 2019, Diane reported net income of $180,000.
2. During 2019, Diane both borrowed on a long-term basis and paid back some long-term debt. During 2019, Diane paid back $125,000.
3. During 2019. Diane both bought and sold some property, plant, and equipment (PP&E). A machine Diane sold during 2019 originally cost her $65,000. Diane sold the PP&E for $40,000 and reported a gain on the sale of $5,000.
4. During 2019, Diane issued additional common stock.
5. During 2019, Diane declared four quarterly dividends. 2019 was the first year in which Diane declared dividends.
6. During 2019, Diane did NOT enter into any non-cash investing or financing activities.

Prepare Diane’s statement of cash flows (in good form) for the year ended December 31, 2019. Diane uses the indirect method. You can use illustration 5.23 in your textbook as an example of “good form” in statement of cash flows preparation.

Answer 1

Diane Bal. Cash Property, plant, and equipment 450000 65000 313000 Bal. 698000 763000 763000 180000 74000 Statement of Cashflows For the period ending 31.12.2019 Cashflow from Operating Activity Net Income Adjustments: Depreciation Expense Gain on sale of Equipment Decrease in Accounts receivable Decrease in Prepaid expenses Decrease in Accrued expenses payable Decrease in Unearned revenues Cash generated from Operating Activity -5000 62000 Accumulated depreciation 30000 Bal. Depreciation Exp 154000 184000 110000 74000 23000 Bal. -20000 -35000 99000 184000 279000 Sales of Equipment Property, plant 65000 Accumulated der Gain on sale of 5000 Cash 30000 -313000 40000 Cashflow from Investing Activity Property, plant, and equipment purchased Property, plant, and equipment sold Cash used for Investing Activity 40000 -273000 70000 70000 10000 Cash 200000 Long-term debt 125000 Bal. Cash 150000 275000 130000 -125000 75000 75000 Bal. 275000 Cashflow from Financing Activity Common Stock issued Additional paid-in-capital Long-term debt paid Long-term debt borrowed Dividends paid ( 55000 +0 - 15000) Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance -40000 50000 56000 Dividends 40000 Retained earnings 55000 Bal. Net Income 165000 190000 180000 246000 Bal. 220000 220000