Question

The comparative balance sheets and income statement for Franklin Corporation follow:

Balance Sheets As of December 31
	2017				2016
Assets
Cash	$	67,778			$	41,150
Accounts receivable		29,073				21,320
Merchandise inventory		156,338				171,970
Prepaid rent		2,295				4,590
Equipment		252,050				285,350
Accumulated depreciation		(147,740	)			(239,060	)
Land		190,190				78,290
Total assets	$	549,984			$	363,610
Liabilities
Accounts payable (inventory)	$	69,662				79,020
Salaries payable		30,357				26,020
Stockholders’ equity
Common stock, $50 par value		250,500				201,500
Retained earnings		199,465				57,070
Total liabilities and equity	$	549,984			$	363,610

Income Statement For the Year Ended December 31, 2017
Sales	$	1,496,000
Cost of goods sold		(795,075	)
Gross profit		700,925
Operating expenses
Depreciation expense		(22,880	)
Rent expense		(20,300	)
Salaries expense		(258,330	)
Other operating expenses		(257,020	)
Net income	$	142,395

Other Information

1. Purchased land for $111,900.

2. Purchased new equipment for $101,700.

3. Sold old equipment that cost $135,000 with accumulated depreciation of $114,200 for $20,800 cash.

4. Issued common stock for $49,000.

	FRANKLIN CORPORATION Statement of Cash Flows For the Year Ended December 31, 2017 Cash flows from operating activities: Add: Increases in current assets and Decreases in current liabilities: Less: Increases in current assets and Decreases in current liabilities: Plus: Noncash charges $0 Cash flows from investing activities: 0 Cash flows from financing activities: 0 0 Ending cash balance $0

Answer 1

FRANKLIN CORPORATION Statement of Cash Flows For the Year Ended December 31, 2017 $ 1,42,395 $ $ -7,753 -9,358 Cash flows from operating activities Net Income Less: Increases in Current assets and Decreases in Current Liabilities Accounts receivable Accounts Payable Add: Decreases in Current assets and increases in Current Liabilities Merchandise Inventory Prepaid Rent Salaries Payable Plus: Noncash changes Depreciation Expense Net cash used for operating activities $ $ $ 15,632 2,295 4,337 $ 22,880 $ 1,70,428 Cash flows from investing activities Cash paid for Land Cash paid for Equipment Cash received from sale of Equipment Net cash used for investing activities $-1,11,900 $-1,01,700 $ 20,800 $-1,92,800 Cash flows from financing activities Cash received from issue of common stock Net cash flow from financing activities $ 49,000 $ 49,000 Net Increase in Cash Cash balance, January 1, 2017 Cash balance, December 31, 2018 $ $ $ 26,628 41,150 67,778

Workings: Increase in Accounts Receivable = Closing Balance - Opening Balance = 29,073 - 21,320 = $ 7,753 Increase in Accounts Payable = Closing Balance - Opening Balance = 79,020 - 69,662 = $ 9,358 Decrease in Merchandise Inventory = Opening Balance - Closing Balance = 171,970 - 156,338 = $ 15,632 Decrease in Prepaid Rent = Opening Balance - Closing Balance = 4,590 - 2,295 = $ 2,295 Decrease in Salaries Payable = Opening Balance - Closing Balance = 30,357 - 26,020 = $ 4,337