AC 313 Statement of Cash Flows

Presented below are the balance sheets of Spitfire Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2.The Income Statement for the year ended December 31, Year 2 as well as additional information from the accounting records are on the next page.All dollars are in thousands.

Spitfire Corporation

Balance Sheets

December 31, Year 1 and Year 2

AssetsYear 1 Year 2

Cash$90$ 152

Accounts receivable260269

Less: Allowance for doubtful accounts(5)(7)

Prepaid insurance10 6

Inventory240248

Long-term investment70 46

Land170170

Buildings and equipment 260296

Less: Accumulated depreciation(80)(109)

Trademark 3028

Total Assets$ 1,045 $1,099

Liabilities & Stockholders' Equity

Accounts payable$52$37

Salaries payable4 3

Deferred tax liability1620

Lease liability-- 70

Bonds Payable280120

Less: Discount on bonds (27) (25)

Common Stock260300

Paid-In Capital -in excess of par80110

Preferred Stock-80

Retained Earnings 380 384

Total Liabilities & Stockholders' Equity$1,045 $ 1,099

Spitfire Corporation

Income Statement

For the Year Ended December 31, Year 2

Net sales revenue$ 400

Investment revenue14

Operating Expenses:

Cost of Goods$160

Salaries expense60

Depreciation expense40

Trademark amortization2

Bad debts expense6

Insurance expense22

Bond interest expense50 340

Operating Income$74

Other Income (Expense):

Loss on sale of building $(30)

Gain on sale of investments6 (24)

Pre-Tax Income from Continuing Operations$ 50

Less: Income Tax Expense:26

Net Income$ 24

Additional Information:

1.A building that originally cost $44 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $3 million.

2.Investment revenue includes Spitfire Corporation's $8 million share of the net income of Beta Corporation, an equity method investee.

3.$40 million par value of common stock was sold for $70 million, and $80 million of preferred stock was sold at par.

4.A long-term investment in bonds, originally purchased for $32 million, was sold for $38 million.

5.Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $4 million.

6.The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $80 million. Annual lease payments of $10 million are paid at January 1^stof each year starting in Year 2.

7.$160 million of bonds were retired at maturity.

8.Shareholders were paid cash dividends of $20 million.

Required:

Use the EXCEL worksheet template provided. There are three tabs-

1.Direct Method Statement of Cash Flows (SCF). This should be the formal Statement of Cash Flows (see your textbook.)

2.Spreadsheet for preparing the SCFs. This is where you use the spreadsheet method as a tool for preparing the statement. Show ALL your work either with t-accounts, summary entries, or a combination of both.

3.Cash flows from Operating Activities - CFOs Indirect Method

A.In the tab labeled Direct Method SCFs, prepare a complete statement of cash flows for Spitfire Corporation using the direct method of reporting cash flows from operating activities for the year ended December 31, Year 2. Show your work in the second tab labeled Spreadsheet for SCFs. Use the spreadsheet method as a tool with supporting t-accounts, summary entries or a combination of both. For both the direct and indirect method you will need to analyze the impact the Allowance for doubtful accounts has on accounts receivable and cash.

B.In the third tab, prepare the operating activities section only for the statement of cash flows for Ace Corporation using the indirect method for the year ended December 31, Year 2.