91Ó°ÊÓ

The balance sheet data of Brown Company at the end of 2017 and 2016 follow.

2017 2016

Cash \( 30,000 \) 35,000

Accounts receivable (net) 55,000 45,000

Inventory 65,000 45,000

Prepaid expenses 15,000 25,000

Equipment 90,000 75,000

Accumulated depreciation—equipment (18,000) (8,000)

Land 70,000 40,000

\(307,000 \)257,000

Accounts payable \( 65,000 \) 52,000

Accrued expenses 15,000 18,000

Notes payable—bank, long-term –0– 23,000

Bonds payable 30,000 – 0–

Common stock, \(10 par 189,000 159,000

Retained earnings 8,000 5,000

\)307,000 \(257,000

Land was acquired for \)30,000 in exchange for common stock, par \(30,000, during the year; all equipment purchased was for cash. Equipment costing \)10,000 was sold for \(3,000; book value of the equipment was \)6,000. Cash dividends of $10,000 were declared and paid during the year.

Instructions

Compute net cash provided (used) by:

(a) Operating activities.

(b) Investing activities.

(c) Financing activities.

Step by step solution

01

Computation of net cash provided by operating activities

Cash flow from operating activities	Amount ($)	Amount ($)
Net Income		$13,000
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation expense	14,000
Loss on sale of equipment	3,000
Increase in accounts receivables	-10,000
Increase in inventory	-20,000
Decrease in prepaid expenses	10,000
Increase in accounts payable	13,000
Decrease in accrued expenses	-3,000	7,000
Net cash provided by operating activities		$20,000

02

Computation of net cash provided (used) by investing activities

Cash flow from investing activities	Amount ($)	Amount ($)
Sale of equipment		$3,000
Purchase of equipment		-25,000
(90,000 – (75,000-10,000))
Net cash used for investing activities		-$22,000

03

Computation of net cash provided (used) by financing activities

Cash flow from financing activities	Amount ($)	Amount ($)
Issuance of bonds payable		$30,000
Payment of notes payable		-23,000
Dividend payment		-10,000
Net cash used by financing activities		-$3,000

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