Question

Matthauson Company has the following comparative balance sheet data available:

	12/31/2019	12/31/2018
Cash	$30,000	$80,000
Accounts receivable, net	160,000	100,000
Inventory	100,000	70,000
Prepaid rent	20,000	10,000
Total current assets	$310,000	$260,000
Equipment	$400,000	$200,000
Accumulated depreciation	(60,000)	(50,000)
Total Assets	$650,000	$410,000
Accounts payable	$50,000	$40,000
Salaries payable	40,000	40,000
Bonds payable	0	50,000
Common stock, $10 par	350,000	100,000
Retained earnings	210,000	180,000
Total liabilities & stockholders' equity	$650,000	$410,000

Additional information:

1. The company reports net income of $100,000 and depreciation expense of $20,000 for the year ending December 31, 2019.

2. Dividends declared and paid in 2019, $70,000.

3. Equipment with a cost of $20,000 and accumulated depreciation of $10,000 was sold for $3,000.

4. New equipment was purchased for cash.

5. No common stock was retired during 2019.

The company also reports the following income statement for the year ending December 31, 2019:

Sales		$1,000,000
Expenses:
Cost of goods sold	600,000	-
Salaries expense	200,000	-
Rent expense	40,000	-
Depreciation expense	20,000	-
Interest expense	3,000	-
Loss on sale of equipment	7,000	-
Total Expenses	-	870,000
Income Before Taxes	-	130,000
Income tax expense		30,000
Net income		$100,000

Using the direct method, prepare the statement of cash flows for the year ending December 31, 2019.

​Matthauson Company

​Statement of Cash Flows

​Year Ended December 31, 2019

B

Carrie Heffernan Company purchased a delivery van on January 1, 2019, for $50,000. The van was expected to remain in service 4 years (or 100,000 miles) and has a residual value of $5,000. The van traveled 30,000 miles the first year, 25,000 miles the second year, and 22,500 miles in the third and fourth years.

Required:

1. Prepare a schedule of depreciation expense per year for the first four years of the asset's life using the (a) straight-line method, (b) units-of-production method, and (c) double-declining-balance method.

2.

2. Prepare a schedule of the book value of the van for each of the four years using the (a) straight-line method, (b) units-of-production method and (c) double-declining-balance method.

Answer 1

A.

B.

MATTHAUSON COMPANY Statement of cash flows (direct method) For the year ended December 31, 2019 $ $ 940,000 (620,000) Cash flows from operating activities: Cash receipts from customers (100,000+1,000,000-160,000) Cash paid to creditors {40000 + (600,000 - 70000 + 100000) - 50000} Cash payment for expenses {(20,000 +40,000 -10000) + 3000 + 200,000} Cash payment for income tax Net cash flow from operating activities (253,000) (30,000) 37,000 Cash flow from investing activities Sale of equipment Purchase of equipment (400,000 - {200,000 - 20000}) Net cash flow from investing activities 3,000 (220,000) (217,000) Cash flow from financing activities: Cash receipts from stock issue Cash payment on debt Cash payment for dividend 250,000 (50,000) (70,000) Net cash flow from financing activities Net increase(decrease) in cash Add: Beginning cash balance Ending cash balance 130,000 (50,000) 80,000 30,000

I have combined both 1 and 2 in a single schedule.

You can find 1.depreciation and 2.book value in the given schedule.

Straight line method Annual depreciation expense book value Date Calculations 01-Jan-19 31-Dec-19 (50000-5000)/4 31-Dec-20 (50000-5000)/4 31-Dec-21 (50000-5000)/4 31-Dec-22 (50000-5000)/4 11,250 11,250 11,250 11,250 50,000 38,750 27,500 16,250 5,000

units of production method Annual depreciation expense book value Date Calculations 01-Jan-19 31-Dec-19 (50000-5000)*30000/100000 31-Dec-20 (50000-5000) * 25000/100000 31-Dec-21 (50000-5000)*22500/100000 31-Dec-22 (50000-5000)*22500/100000 13,500 11,250 10,125 10,125 50,000 36,500 25,250 15,125 5,000

double declining balance method Annual depreciation expense book value Date Calculations 01-Jan-19 31-Dec-19 50000*50% 31-Dec-201 25000* 50% 31-Dec-21 12500*50% 31-Dec-22 6250-5000 25,000 12,500 6,250 1,250 50,000 25,000 12,500 6,250 5,000
thank you. Have a grt day.