Question

The income statement and unclassified statement of financial position for Sandhill, Inc. follow:

SANDHILL, INC. Statement of Financial Position December 31
Assets		2018			2017
Cash		$99,400			$48,800
Held for trading investments		123,000			112,500
Accounts receivable		79,500			41,900
Inventory		122,100			94,500
Prepaid expenses		18,500			28,200
Property, plant, and equipment		314,000			284,500
Accumulated depreciation		(45,500	)		(53,800	)
Total assets		$711,000			$556,600
Liabilities and Shareholders’ Equity
Accounts payable		$97,000			$73,900
Accrued liabilities		11,600			7,700
Bank loan payable		127,400			180,500
Common shares		230,000			180,000
Retained earnings		245,000			114,500
Total liabilities and shareholders’ equity		$711,000			$556,600

SANDHILL, INC. Income Statement Year Ended December 31, 2018
Sales					$509,600
Cost of goods sold					185,850
Gross profit					323,750
Operating expenses					116,410
Income from operations					207,340
Other revenues and expenses
Unrealized gain on held for trading investments		$10,500
Interest expense		(4,700	)		5,800
Income before income tax					213,140
Income tax expense					42,000
Net income					$171,140

Additional information:

1.		Prepaid expenses and accrued liabilities relate to operating expenses.
2.		An unrealized gain on held for trading investments of $10,500 was recorded.
3.		New equipment costing $87,000 was purchased for $24,900 cash and a $62,100 long-term bank loan payable.
4.		Old equipment having an original cost of $57,500 was sold for $1,600.
5.		Accounts payable relate to merchandise creditors.
6.		Some of the bank loan was repaid during the year.
7.		A dividend was paid during the year.
8.		Operating expenses include $46,100 of depreciation expense and a $1,500 loss on disposal of equipment.

(a)

Prepare the statement of cash flows, using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

WN 1 - Cash paid for Operating Expenses

Operating expenses	$ 116,410
Less: Decrease in prepaid Expense	$    (9,700)
Less: Increase in salaries and wages payable	$    (3,900)
Less: Depreciation expense	$ (46,100)
Less: Loss on disposal of equipment	$    (1,500)
Cash paid for operating expenses	$    55,210

SANDHILL INC
Statement of Cash flows - Direct Method
For the Year Ended December 31, 2018
Cash flows from operating activities
Cash received from customers		$   472,000	509600+41900-79500
Cash payments
Cash paid to suppliers	$ (190,350)		185850+73900-97000+122100-94500
Cash paid for operating expenses (WN 1)	$   (55,210)
Cash paid for interest	$      (4,700)
Income taxes paid	$   (42,000)
		$ (292,260)
Net cash provided by operating activities		$   179,740
Cash flows from investing activities
Cash paid for purchase of equipment	$   (24,900)
Cash received from sale of equipment	$        1,600
Net cash used by investing activities		$   (23,300)
Cash flows from financing activities
Dividend payments	$   (40,640)
Cash paid for bank loan	$ (115,200)		127400-180500-62100
Cash received from issuance of common stock	$      50,000
Net cash used by financing activities		$ (105,840)
Net Decrease in cash and cash equivalents		$      50,600
Cash and cash equivalents at beginning of period		$      48,800
Cash and cash equivalents at end of period		$      99,400
Non-Cash financing and investing activities
Acquisition of Equipment by issuing long term note		$      62,100

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