Q10E Question: (L01,4) (Classificatio... [FREE SOLUTION]

Chapter 23: Q10E (page 1337)

Question: (L01,4) (Classification of Transactions) Following are selected balance sheet accounts of Allman Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information.
2017
2016
Increase (Decrease)
Selected balance sheet accounts
Assets
Accounts receivables
$34,000
$24,000
$10,000
Property, plant and equipment
277,000
247,000
30,000
Accumulated depreciation 鈥� plant assets
(178,000)
(167,000)
(11,000)
Liabilities and stockholder鈥檚 equity
Bonds payable
$49,000
$46,000
$3,000
Dividend payable
8,000
5,000
3,000
Common stock, $1 par
22,000
19,000
3,000
Additional paid-in-capital
9,000
3,000
6,000
Retained earnings
104,000
91,000
13,000
Selected income statement information for the year ended December 31, 2017:
Sales revenue
$155,000
Depreciation
33,000
Gain on sale of equipment
14,500
Net income
31,000
Additional information:
1. During 2017, equipment costing $45,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2017, $20,000 of bonds payable were issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.
Instructions
Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
(a) Payments for purchase of property, plant, and equipment.
(b) Proceeds from the sale of equipment.
(c) Cash dividends paid.
(d) Redemption of bonds payable.

Short Answer

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Answer

Item	Section	Amount
Payment for purchase of property, plant, and equipment	Investing activity	$55,000
Proceed from the sale of equipment	Investing activity	$37,500
Cash dividend paid	Operating activity	$0
Redemption of bonds payable	Financing activity	$17,000

Step by step solution

Definition of Statement of Cash Flow

The schedule prepared by the business entity for providing a summary of all the transactions, including cash payments and receipts, is known as the statement of cash flow.

Payment for purchase of property, plant, and equipment

Payment made for the purchase of property, plant, and equipment is an investing activity.

Particular	Amount $
Property plant and equipment at end of the year 2017	$277,000
Add: Sale of equipment	45,000
Less: property, plant, and equipment at the end of the year 2016	(247,000)
Less: Equipment purchased against bonds	(20,000)
Payment made	$55,000

Proceeds from the sale of equipment

Particular	Amount $
Gain on sale of equipment	$14,500
Cost of equipment Sold	$45,000
Less: Depreciation expenses	($22,000)
Proceed from sale of equipment	$37,500

Cash dividend paid

The balance of the dividend payable account has increased by $3,000, and no cash dividend is declared during the period, which means that there is no cash paid for the dividend.

Redemption of bonds payable

Particular	Amount $
Opening balance	$46,000
Add: issued for property, plant and equipment	20,000
Less: Closing balance	(49,000)
Redemption	$17,000

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MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017 (\(000 OMITTED)
Sales revenue		\)3,800
Expenses
Cost of goods sold	\(1,200
Salaries and benefits	725
Heat, light and power	75
Depreciation	80
Property tax	19
Patent amortization	25
Miscellaneous expenses	10
Interest	30	2,164
Income before taxes		1,636
Income tax		818
Net income		818
Retained earnings 鈥� Jan 1, 2017		310
		1,128
Stock dividend declared and issued		600
Retained earnings Dec 31, 2017		\)528

MORTONSON COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 (\(000 OMITTED)
Assets	2017	2016
Current assets
Cash	\)333	\(100
U.S treasury notes (available for sale)	10	50
Accounts receivables	780	500
Inventory	720	560
Total current assets	1,843	1,210

Long-term assets
Land	150	70
Building and equipment	910	600
Accumulated depreciation 鈥� building and equipment	(200)	(120)
Patent (less: amortization)	105	130
Total long-term assets	965	680
Total assets	\)2,808	\(1,890

Liabilities and stockholder鈥檚 equity
Current liabilities
Account payable	\)420	\(330
Income tax payable	40	30
Notes payable	320	320
Total current liabilities	780	680
Long-term note payable	200	200
Total liabilities	980	880
Stockholder鈥檚 equity
Common stock	1,300	700
Retained earnings	528	310
Total stockholder鈥檚 equity	1,828	1,010
Total liabilities and stockholder鈥檚 equity	\)2,808	$1,890

	Dec 31, 2017	Dec 31, 2016	Increase or (decrease)
Cash	\(277,900	\)298,000	(\(20,100)
Accounts receivable	469,424	353,000	116,424
Inventory	741,700	610,000	131,700
Prepaid expenses	12,000	8,000	4,000
Investment in subsidiary	110,500	0	110,500
Cash surrender value of life insurance	2,304	1,800	504
Machinery	207,000	190,000	17,000
Buildings	535,200	407,900	127,300
Land	52,500	52,500	0
Patents	69,000	64,000	5,000
Copyrights	40,000	50,000	(10,000)
Bond discount and issue costs	4,502	0	4,502
Total	\)2,522,030	\(2,035,200	\)486,830

Income tax payable	\(90,250	\)79,600	\(10,650
Account payable	299,280	280,000	19,280
Dividend payable	70,000	0	70,000
Bond payable 鈥� 8%	125,000	0	125,000
Bond payable 鈥� 12%	0	100,000	(100,000)
Allowance for doubtful accounts	35,300	40,000	(4,700)
Accumulated depreciation 鈥� building	424,000	400,000	24,000
Accumulated depreciation 鈥� machinery	173,000	130,000	43,000
Premium on bond payable	0	2,400	(2,400)
Common stock 鈥� no par	1,176,200	1,453,200	(277,000)
Paid-in-capital in excess of par 鈥� common stock	109,000	0	109,000
Retained earnings 鈥� unappropriated	20,000	(450,000)	470,000
Total	\)2,522,030	\(2,035,200	\)486,830

STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017
January 1, 2017	Balance (deficit)	(\(450,000)
March 31, 2017	Net income for first quarter of 2017	25,000
April 1, 2017	Transfer from paid-in capital	425,000
	Balance	0
December 31, 2017	Net income for last three quarters of 2017	90,000
	Dividend declared鈥攑ayable January 21, 2018	(70,000)
	Balance	\)20,000

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Short Answer

Step by step solution

Definition of Statement of Cash Flow

Payment for purchase of property, plant, and equipment

Proceeds from the sale of equipment

Cash dividend paid

Redemption of bonds payable

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	2017	2016	Increase (Decrease)
Selected balance sheet accounts
Assets
Accounts receivables	\(34,000	\)24,000	\(10,000
Property, plant and equipment	277,000	247,000	30,000
Accumulated depreciation 鈥� plant assets	(178,000)	(167,000)	(11,000)

Liabilities and stockholder鈥檚 equity
Bonds payable	\)49,000	\(46,000	\)3,000
Dividend payable	8,000	5,000	3,000
Common stock, \(1 par	22,000	19,000	3,000
Additional paid-in-capital	9,000	3,000	6,000
Retained earnings	104,000	91,000	13,000

Sales revenue	\)155,000
Depreciation	33,000
Gain on sale of equipment	14,500
Net income	31,000