Preparing a statement of cash flows. (Adapted from CPA examination.) The management of Warren Corporation, concerned over
Question:
Preparing a statement of cash flows. (Adapted from CPA examination.) The management of Warren Corporation, concerned over a decrease in cash, provides you with the comparative analysis of changes in account balances between December 31, Year 4, and December 31, Year 5, appearing in Exhibit 13.7.
During Year 5, Warren Corporation engaged in the following transactions:
(1) Purchased new machinery for \(\$ 463,200\). In addition, it sold certain obsolete machinery, having a book value of \(\$ 73,200\), for \(\$ 57,600\). It made no other entries in Machinery and Equipment or related accounts other than provisions for depreciation.
(2) Paid \(\$ 2,400\) of legal costs in a successful defense of a new patent, which it correctly debited to the Patents account. It recorded patent amortization amounting to \(\$ 5,040\) during Year 5 .
(3) Purchased 120 shares of preferred stock, par value \(\$ 100\), at \(\$ 110\) and subsequently canceled it. Warren Corporation debited the premium paid to Retained Earnings.
(4) On December 10, Year 5, the board of directors declared a cash dividend of \(\$ 0.24\) per share, payable to holders of common stock on January 10, Year 6.
(5) The following presents a comparative analysis of retained earnings as of December 31, Year 4 and Year 5:
(6) Warren Corporation wrote off accounts totaling \(\$ 3,600\) as uncollectible during Year 5 .
a. Prepare a T-account work sheet for the preparation of a statement of cash flows.
b. Prepare a formal statement of cash flows for Warren Corporation for the year ending December 31, Year 5.
Step by Step Answer:
Financial Accounting An Introduction To Concepts Methods And Uses
ISBN: 9780324183511
10th Edition
Authors: Clyde P. Stickney, Roman L. Weil