Question

Question #8.

Below is the balance sheet of Brown Inc. for the years 2017 and 2018.

	December 31, 2018	Dec. 31, 2017
Cash ……………………………………………….	$    6,000	$     9,000
Accounts receivable ……………………………..	10,000	12,000
Merchandise inventory       …………………….	29,000	18,000
Prepaid rent ………………………………………	6,000	4,000
Equipment ………………………………………..	110,000	90,000
Accumulated depreciation ………………………	(40,000)	(23,000)
Total assets ………………………………………	$121,000	$110,000
Accounts payable ……………………………….	$    9,000	$   25,000
Dividends payable ………………………………	6,000	4,000
Common stock ………………………………….	38,000	30,000
Additional Paid in Capital, common stock …… Retained earnings ………………………………	9,000     59,000	2,000     49,000
Total liabilities and stockholders’ equity ………	$121,000	$110,000

Other information:

No equipment was sold or retired during 2018. Brown’s net income for 2018 was $83,000.

Use the information above & calculate:

1. Did Brown Inc. buy any equipment in 2018? How much?
2. Determine the amount of depreciation expense charged/recognized for the year 2018
3. How of much cash was paid for depreciation in 2018?
4. How much was the amount of dividends declared & paid during the year 2018?

Answer 1

a) Purchase of equipment for the year 2018

Yes, Brown Inc purchase equipment during the year as there is change noted in the gross block of equipment.

Closing Gross block of Equipment - $110,000

Opening Gross block of Equipment - $90,000

Change in gross block of equipment by $20,000 is due to purchase of equipment in the current year.

b) Depreciation will be change in the value of accumulated depreciation as there no asset sold or retire during the year.

Closing accumulated depreciation at year end -: $40,000

Opening accumulated depreciation at year end -: $23,000

Depreciation for the year -: $17,000

c) Cash paid for equipment is $20,000 out of which $17,000 is for depreciation for the current year.

d) Amount declared during the year as dividend-:

Opening reported retained earnings -: $ 49,000

Add-: Net Income for the year 2018-: $83,000

Less-: Closing reported retained earnings-: $ 59,000

Dividend declared during the year -: $73,000

Dividend paid during the year

Opening dividend payable -: $ 4,000

Add-: Dividend declared during the year -: $73,000

Less-: Closing Dividend payable at year end -: $6,000

Dividend paid during the year -: $71,000