Q8P Comparative balance sheet accoun... [FREE SOLUTION]

Chapter 23: Q8P (page 1389)

Comparative balance sheet accounts of Sharpe Company are presented below.
SHARPE COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31
Debit Balances 2017 2016
Cash $ 70,000 $ 51,000
Accounts Receivable 155,000 130,000
Inventory 75,000 61,000
Debt investments (available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $ 10,000 $ 8,000
Accumulated Depreciation鈥擡quipment 21,000 14,000
Accumulated Depreciation鈥擝uildings 37,000 28,000
Accounts Payable 66,000 60,000
Income Taxes Payable 12,000 10,000
Long-Term Notes Payable 62,000 70,000
Common Stock 310,000 260,000
Retained Earnings 92,000 95,000
Totals $610,000 $545,000
Additional data:
1. Equipment that cost $10,000 and was 60% depreciated was sold in 2017.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Debt investments that cost $35,000 were sold during the year.
5. There were no write-offs of uncollectible accounts during the year.
Sharpe鈥檚 2017 income statement is as follows.
Sales revenue $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes depreciation expense and bad debt expense) 250,000
Income from operations 100,000
Other revenues and expenses Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $ 67,000
Instructions
(a) Compute net cash provided by operating activities under the direct method.
(b) Prepare a statement of cash flows using the indirect method.

Expert verified

Cash flow from operating activities using the direct method is computed as $48,000
The net increase in cash flow using the indirect method is$19,000

Cash flow from operating activities refers to the flow of Cash related to the business's regular or day-to-day transactions.

Net cash provided by Operating Activities
	Amount ($)	Amount ($)
Cash receipts from customers (950,000-25,000)		$925,000
Cash Payments:
To suppliers (600,000+14,000-6,000)	608,000
For operating expenses (250,000-22,000-2,000)	226,000
For Income Taxes (45,000-2,000)	43,000	877,000
Net Cash provided by operating activities		$48,000

Sharpe Company
Statement of cash flows
For the year ended December 31, 2017
Cash flows from operating activities	Amount ($)	Amount ($)
Net Income		$67,000
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation expense	$22,000
Gain on sale of investments	(15,000)
Loss on sale of equipment	3,000
Increase in accounts receivables (net)	(23,000)
Increase in inventory	(14,000)
Increase in accounts payable	6,000
Increase in income taxes payable	2,000	(19,000)
Net cash provided by operating activities		48,000

Cash flows from Investing activities
Purchase of investments [55,000-(85,000-35,000)]	(5,000)
Purchase of equipment [70,000-(48,000-10,000)]	(32,000)
Sale of investment (35,000 + 15,000)	50,000
Sale of equipment [10,000-(10,000x60%)] 鈥� 3,000	1,000
Net cash provided by investing activities		14,000

Cash flows from financing activities
Payments of long-term notes payable	(8,000)
Cash dividends paid [(95,000+67,000)-92,000]	(70,000)
Issuance of common stock (50,000-15000)	35,000
Net cash used by financing activities		(43,000)
Net Increase in cash		$19,000
Cash, January 1, 2017		$51,000
Cash, December 31, 2017		$70,000

Non cash investing and financing activities
Issuance of common stock for land		$15,000

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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

PAT METHENY COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2017 AND 2016
	2017	2016
Cash	\(1,800	\)1,150
Receivables	1,750	1,300
Inventory	1,600	1,900
Plant assets	1,900	1,700
Accumulated depreciation	(1,200)	(1,170)
Long-term-investment (Held to maturity)	1,300	1,420
	\(7,150	\)6,300

Account payable	\(1,200	\)900
Accrued liabilities	200	250
Bond payable	1,400	1,550
Common stock	1,900	1,700
Retained earnings	2,450	1,900
	\(7,150	\)6,300

PAT METHENY COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017
Sales	\(6,900
Cost of goods sold	(4,700)
Gross margin	2,200
Selling and administrative expenses	930
Income from operations	1,270
Other revenue and gains
Gains on sale of investment	80
Income before tax	1,350
Income tax expenses	540
Net income	810
Cash dividend	260
Income retained in business	\)550