Q7IFRS Dingel Corporation has contracte... [FREE SOLUTION]

Chapter 23: Q7IFRS (page 1400)

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.
December 31
2017
2016
Buildings
$ 鈥�0鈥�
$29,750
Equipment
45,000
20,000
Patents
5,000
6,250
Investments
鈥�0鈥�
3,000
Inventory
12,000
9,000
Accounts receivable
12,250
10,000
Cash
33,500
13,000
$107,750
$91,000
Share capital鈥攐rdinary
$ 43,000
$33,000
Retained earnings
20,750
6,000
Allowance for doubtful accounts
3,000
4,500
Accumulated depreciation on equipment
2,000
4,500
Accumulated depreciation on buildings
鈥�0鈥�
6,000
Accounts payable
5,000
3,000
Dividends payable
鈥�0鈥�
5,000
Long-term notes payable
31,000
25,000
Notes payable, short-term (non-trade)
3,000
4,000
$107,750
$91,000
Additional data related to 2017 are as follows.
Equipment that had cost $11,000 and was 40% depreciated at the time of disposal was sold for $2,500.
$10,000 of the long-term notes payable was paid by issuing ordinary shares.
Cash dividends paid were $5,000.
On January 1, 2017, the building was completely destroyed by a flood. Insurance proceeds on the building were $32,000.
Equity investments (non-trading) were sold at $1,700 above their cost.
Cash was paid for the acquisition of equipment.
A long-term note for $16,000 was issued for the acquisition of equipment.
Interest of $2,000 and income taxes of $6,500 were paid in cash.
Instructions Prepare a statement of cash flows using the indirect method.

Short Answer

Expert verified

Net increase in cash equals $20,500.

Step by step solution

Meaning of Cash flow statement

The cash flow statement gives information on changes in a company's Cash Equivalents and Cash throughout an accounting period. This adjustment consolidates the interests into running, finance, and investing.

Preparing a statement of cash flow

DINGEL CORPORATION

Statement of Cash Flows

For the year ended December 31, 2017

Cash flow from operating activities

Net Income

$14,750

Adjustment to reconcile net income to net

cash provided by operating activities:

Loss on sale of equipment

$4,100

Gain from flood damage

(8,250)

Depreciation expense

1,900

Patent amortization

1,250

Gain on sale of equity investment

(1,700)

Increase in accounts receivables (net)

(3,750)

Increase in inventory

(3,000)

Increase in account payable activities

2,000

(7,450)

7,300

Cash flow from investing activities

Sale of equity investment

4,700

Sale of equipment

2,500

Purchase of equipment (cash)

(20,000)

Proceeds from flood damage to building

32,000

Net cash provided by investing activities

19,200

Cash flow from financing activities

Payment of dividends

(5,000)

Payment of short-term note payable

(1,000)

Net cash used for financing activities

(6,000)

Increase in cash

20,500

Cash, January 1, 2017

13,000

Cash, December 31, 2017

$33,500

Supplement disclosure of cash flow information:

Cash paid during the year for:
Interest	$2,000
Income taxes	$6,500

Non-cash investing and financing activities:

Retired note payable by issuing ordinary shares	$10,000
Purchased equipment by issuing notes payable	16,000

Working notes:

Computation of net income

Ending retained earnings	$20,750
Beginning retained earnings	(6,000)
Net income	$14,750

Computation of loss on sale

Cost	$11,000
Accumulated depreciation	(4,400)
Book value	6,600
Proceeds from sale	(2,500)
Loss on sale	$4,100

Computation of gain from flood damage

Cost	$29,750
Accumulated depreciation	(6,000)
Book value	23,750
Proceeds from insurance	(32,000)
Gain from flood damage	($8,250)

Computation of depreciation expense

Accumulated depreciation on equipment sold	$4,400
Decrease in accumulated depreciation	(2,500)
Depreciation expense	$1,900

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MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016
	2017	2016
Cash	\(10,000	\)4,000
Accounts receivable	20,500	12,950
Short-term investments	22,000	30,000
Inventory	42,000	35,000
Prepaid rent	3,000	12,000
Prepaid insurance	2,100	900
Supplies	1,000	750
Land	125,000	175,000
Building	350,000	350,000
Accumulated depreciation 鈥� building	(105,000)	(87,500)
Equipment	525,000	400,000
Accumulated depreciation 鈥� equipment	(130,000)	(112,000)
Patents	45,000	50,000
Total assets	\(910,600	\)871,100

Account payable	\(22,000	\)32,000
Income tax payable	5,000	4,000
Salaries and wages payable	5,000	3,000
Short-term note payable	10,000	10,000
Long-term note payable	60,000	70,000
Bond payable	400,000	400,000
Premium on bond payable	20,303	25,853
Common stock	240,000	220,000
Paid-in-capital in excess of par 鈥� common stock	25,000	17,500
Retained earnings	123,297	88,747
Total liabilities and stockholders equity	\(910,600	\)871,100

MICHAELS COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue		\(1,160,000
Cost of goods sold		748,000
Gross margin		412,000
Operating expenses
Selling expenses	\)79,200
Administrative expenses	156,700
Depreciation/Amortization expenses	40,500
Total operating expenses		276,400
Income from operations		135,600
Other revenue/expenses
Gain on sale of land	8,000
Gain on sale of short-term investment	4,000
Dividend revenue	2,400
Interest expenses	(51,750)	(37,350)
Income before tax		98,250
Income tax expenses		39,400
Net income		58,850
Dividend to common stockholders		(24,300)
To Retained earnings		$34,550

	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

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Short Answer

Step by step solution

Meaning of Cash flow statement

Preparing a statement of cash flow

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December 31
	2017	2016
Buildings	\( 鈥�0鈥�	\)29,750
Equipment	45,000	20,000
Patents	5,000	6,250
Investments	鈥�0鈥�	3,000
Inventory	12,000	9,000
Accounts receivable	12,250	10,000
Cash	33,500	13,000
	\(107,750	\)91,000
Share capital鈥攐rdinary	\( 43,000	\)33,000
Retained earnings	20,750	6,000
Allowance for doubtful accounts	3,000	4,500
Accumulated depreciation on equipment	2,000	4,500
Accumulated depreciation on buildings	鈥�0鈥�	6,000
Accounts payable	5,000	3,000
Dividends payable	鈥�0鈥�	5,000
Long-term notes payable	31,000	25,000
Notes payable, short-term (non-trade)	3,000	4,000
	\(107,750	\)91,000

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