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Chapter 14: Q41PGB (page 790)

The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Short Answer

Expert verified
  1. Net cash from operating activities is $136,300.
  2. Value of new investment during the year is $20700

Step by step solution

01

Statement of cash flows using the indirect method 

SWEET VALLEY, INC.

Statement of Cash Flows

For the year ended December 31, 2018

Cash Flows From Operating Activities:

Net Income

$107,500

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$14,500

Increase in account receivables

($1,300)

Decrease in merchandise inventory

$12,000

Increase in account payable

$5,500

Decrease in accrued liabilities

($1,900)

Net cash provided/ (used) in operating activities

$136,300

Cash Flows From Investing Activities:

Purchase of plant

($20,700)

Net cash provided/ (used) in investing activities

($20,700)

Cash Flows From Financing Activities:

Issuance of common stock

$23,400

Payment of notes payable ($105,000-$78,000)

($27,000)

Dividend paid

($80,200)

Net cash provided/ (used) in financing activities

($83,800)

Net increase/(Decrease) in cash

$10,900

Cash Balance, December 31, 2017

$15,400

Cash Balance, December 31, 2018

$26,300

02

 Step 2: Schedule of non-cash investing and financing activities 

SWEET VALLEY, INC.

Statement of Cash Flows (Partial)

For the year ended December 31, 2018

Non-cash Investing and financing activities

Acquisition of land by issuing long-term notes payable

$20,900

Total Non-cash Investing and financing activities

$20,900

Step 3: Evaluation of the investment

The value of the purchase of the plant is determined by taking the opening balance i.e., $108,330 and subtracting the cost of the sold plant i.e., $13240 then comparing it to the closing balance of the plant i.e., $115790. Therefore, the difference now will be the purchase of the plant i.e., $20700.

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Most popular questions from this chapter

Preparing the direct method statement of cash flows Use the data in Short Exercise S14A-12 and your results. Prepare the business鈥檚 complete statement of cash flows for the year ended June 30, 2018, using the direct method for operating activities.

Identifying and reporting non-cash transactions

Dirtbikes, Inc. identified the following selected transactions that occurred during the year ended December 31, 2018:

  1. Issued 750 shares of \(3 par common stock for cash of \)17,000.
  2. Issued 5,100 shares of \(3 par common stock for a building with a fair market value of \)96,000.
  3. Purchased new truck with a fair market value of \(29,000. Financed it 100% with a long-term note.
  4. Retired short-term notes of \)28,000 by issuing 1,900 shares of \(3 par common stock.
  5. Paid long-term note of \)10,500 to Bank of Tallahassee. Issued new long-term note of $23,000 to Bank of Trust.

Identify any non-cash transactions that occurred during the year, and show how they would be reported in the non-cash investing and financing activities section of the statement of cash flows

Question: If a company experienced a loss on disposal of long-term assets, how would this be reported in the operating activities section of the statement of cash flows when using the indirect method? Why?

Question: How does the direct method differ from the indirect method when preparing the operating activities section of the statement of cash flows?

Question: Preparing the statement of cash flows鈥攊ndirect method Use the Preston Media Corporation data in Short Exercise S14-7 and the results you calculated from the requirements. Prepare Preston Media鈥檚 statement of cash flows鈥� indirect method鈥攆or the year ended December 31, 2018.
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