Question

Attached are the comparative balance sheets for Neeson Corporation for the years ending December 31, 20X6 and 20X7. The following additional information is also available for fiscal year 20X7 NEESON CORPORATION ADDITIONAL INFORMATION REQUIRED FOR PREPARATION OF STATEMENT OF CASH FLOWS FOR YEAR ENDING DECEMBER 31, 20X7 (1) | Equipment that originally cost $11,000 and was 40% depreciated at the time ofdisposal was sold for $2,500 (2) S15,000 of the long term note payable was paid by issuing common stock. (3)On January 1,20X7 the building was completely destroyed by a flood. Insurance proceeds on the building were $33,000 after $4,000 in taxes on the gain were paid. (4)Long term investments were sold at $2,500 above their cost. (5) A long term note was issued in the amount of $16,000 for the purchase of equipment. The company also made additional borrowings using long term notes during the year. (6) All other purchases of equipment were made in cash. (7) The company declared dividends of S10,000, which were paid during the year along with the dividends that were payable at the beginning of the year. All other changes to the retained earnings account were due to net income for the period

Answer 1

Solution:

Statement of Cash Flows - Neeson Corporation For the year ended Dec 31, 20X7
Particulars	Details	Amount
Cash Flow from Operating Activities:
Net Income ($15,750 - $5,000 + $10,000)		$20,750.00
Adjustments to reconcile net income to cash flow from operating activities:
Depreciation ($2,000 - $4,500 + $4,400)	$1,900.00
Amortization of patents	$1,250.00
Loss on sale of equipment	$4,100.00
Gain on building from insurance proceeds (Net of tax)	-$9,250.00
Gain on sale of investment	-$2,500.00
Increase in Accounts Receivables ($9,250 - $5,500)	-$3,750.00
Increase in Inventory ($12,000 - $9,000)	-$3,000.00
Increase in Accounts payable ($5,000 - $3,000)	$2,000.00
Decrease in short term note payable ($4,000 - $3,000)	-$1,000.00
Total Adjustments		-$10,250.00
Net Cash Flow From Operating Activites (A)		$10,500.00
Cash Flow from Investing Activities:
Proceed from sale of equipment	$2,500.00
Proceed from insurance on destroy of building	$33,000.00
Proceed from sale of long term investment	$5,500.00
Purchase of equipment ($40,000 - $20,000 + $11,000 - $16,000)	-$15,000.00
Net Cash Flow From Investing Activites (B)		$26,000.00
Cash Flow from Financing Activities:
Dividend paid ($10,000 + $6,000)	-$16,000.00
Proceed from long term note ($31,000 - $25,000 + $15,000 - $16,000)	$5,000.00
Net Cash Flow From Financing Activites (C)		-$11,000.00
Total Cash flow from all activities (A+B+C)		$25,500.00
Cash at the beginning of the year		$13,000.00
Cash at the end of year		$38,500.00
Non Cash investing & Financing Activities:
Payment of long term note by issuing common stock		$15,000.00
Purchase of equipment by issuing long term note		$16,000.00