Question

The following financial statement data is available for the Scottsdale Company for Dec. 31, 2019.

Comparative Balance Sheet Data

                                                                 2019                  2018

Cash                                                    $ 39,835         $    4,000

Accounts Receivable                              17,500             12,950

Dividends Receivable                               1,000                      0

Inventory                                                42,000             35,000

Prepaid rent                                               3,000             12,000

Prepaid insurance                                      2,100                  900

Office supplies                                          1,000                  750

Long-term investments                           20,000             30,000

Land                                                    125,000         175,000

Building                                              350,000         350,000

Accumulated depreciation, Building (105,000)        (87,500)

Equipment                                           525,000         400,000

Accumulated depreciation, Equipment (130,000)      (112,000)

Patent                                                      45,000             50,000

            Total assets                              $ 936,435       $ 871,100

Accounts payable                                $    26,000       $   30,000

Income taxes payable                                  5,000              4,000

Wages payable                                            5,000              3,000

Short-term notes payable                          10,000            10,000

Dividends payable                                      1,500                   0

Unearned Income                                          500              2,000

Accrued Liabilities                                      5,303            10,853

Long-term notes payable                          60,000            70,000

Bonds payable                                                    415,000          415,000

Common stock ($10 par)                        290,000          220,000

Paid-in capital in excess of par                 46,410            17,500

Retained earnings                                   106,722            88,747

Treasury Stock                                       (35,000)                     0       

            Total liabilities and equity       $ 936,435       $ 871,100

Income Statement

Sales revenue                                                                          $1,160,000

Cost of goods sold                                                                  (    748,000)

Gross profit                                                                                  412,000

Operating expenses                                                                 (    276,400)

Income from operations                                                               135,600

Other revenues/expense

Gain on sale of land                                         8,000

Gain on sale of long-term investment              4,000

Dividend revenue                                            2,400

Interest expense                                            (51,750)           (     37,350)

Income before taxes                                                                      98,250

Income tax expense                                                                (     39,400)

Net income                                                                                    58,850

Instructions:

Create a Comparative Balance Sheet where you compute the dollar change in every account on the Balance Sheet.

For the Operating Section (Direct Method)

You are starting with Sales, adjusting it for cash received from customers, then going directly down the Income Statement and doing the same with each item on the Income Statement.

You will end up with the same answer for Operating Cash Flow as derived using the Indirect Approach.

Be sure to consider all items labeled Operating in your Comparative Balance Sheet.

You will have several items to adjust that will be slightly different than what is provided in the book. You will be expected to use your best judgment on these

For the Operating Section (Indirect Method):

Start with Net Income

Add back Depreciation and/or Amortization Expense

Adjust out anything included in Net Income that belongs in the Investing or Financing section

Add or subtract accordingly all items you labeled as an Operating activity from the Balance sheet.

Answer 1

Scottsdale Company Comparative Balance sheet For the period ending Dec 3:1 2019Increase Decrease 2018 4000 12950 Cash Accounts Receivable Dividends Receivable Invento Prepaid rent Prepaid insurance Office supplies Long-term investments Land Buildin Accumulated depreciation, Buildin Equipment Accumulated depreciation, Equipment-130000 18000 Patent Total assets 39835 17500 1000 42000 3000 2100 1000 35835 4550 1000 35000 9000 900 750 30000 250 100003 50000 175000 350000 105000 17500 525000 125000 350000 87500 112000 5000 936435 871100 Accounts payable Income taxes payable Wages payable Short-term notes payable Dividends pavable Unearned Income Accrued Liabilities Long-term notes payable Bonds payable Common stock ($10 par Paid-in capital in excess of par Retained earnings Treasury Stock 26000 5000 5000 10000 4000 30000 1000 3000 10000 500 5303 5550 10853 1000070000 415000 290000 70000 4641028 106722 17975 415000 28910 17500 88747 3500035000

Statement of Cashflows Indirect Method For the period ending Dec 31, 2018 Cashflow from Operating Activity Net Income Adjustment: Depreciation (17500 +18000) Amortisation of Patent Gain on sale of land Gain on sale of long-term investment Increase in Accounts Receivable Increase in Dividends Receivable Increase in Inventory Decrease in Prepaid Rent Increase in Prepaid Insurance Increase in Office Supplies Decrease in Accounts Payable Increase in Income Taxes Payable Increase in Wages Payable Increase in Dividends Payable Decrease in Unearned Income Decrease in Accrued Liabilities Cash generated from Operating Activity 35500 5000 8000 -4550 1000 -7000 9000 1200 -250 1000 1500 1500 555016950 75800 Cashflow from Investing Activity Equipment Purchased Land sold (50000 +8000) Long Term Investment sold (10000+400014000 Cash used for Investing Activity 58000 53000 Cashflow from Financing Long Term Notes paid off Common Stock issued Paid-in capital in excess of par Dividends paid (88747+58850 106722) Treasury Stock purchased Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 10000 70000 28910 -40875 35000 13035 35835 4000 39835

Statement of Cashflows Direct Method For the period ending Dec 31, 2018 Cashflow from Operating Activity Collection From Customers Payments to Creditors Payments to Operating Expenses Payments for Income Tax Dividend received Interest Paid Cash generated from Operating Activity 1153950 -717000 -272400 1400 51750 75800 Collection From Customers Sales Revenue Add:Opening Accounts Receivable Less:Ending Accounts Receivable Add:Ending Unearned Income Less:Opening Unearned Income 1160000 12950 -17500 500 2000 1153950 Payments to Creditors Cost of goods sold Add:Opening Accounts Payable Less:Ending Accounts Payable Less:Opening Inventory 748000 26000 35000 717000 Payments to Operating Expenses Operating expenses Add:Ending Prepaid Rent Add:Ending Prepaid Insurance Less:Opening Prepaid Rent Less:Opening Prepaid Insurance Add:Opening Wages Payable Less:Ending Wages Payable Add:Opening Accrued Liabilities Less:Ending Accrued Liabilities Add:Ending Office Supplies Less:Opening Office Supplies 276400 3000 2100 12000 900 3000 5000 10853 5303 1000 -750 272400 Payments for Income Tax Income tax expense Add:Opening Income Tax Payable Less:Ending Income Tax Payable 39400 4000 5000 38400