For E23-13, how did they get 82,000 for operating expenses?

E23-13 (SCFDirect Method) Andrews Inc., a greeting card company, had the following statements prepared as of December 31, 2010. Andrews Inc. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2010 AND 2009 12/31/10 12/31/09 $ 6,000 $ 9,000 Accounts receivable 62,000 49,000 Short-term investments (Available-for-sale) 35,000 18,000 Inventories 40,000 60,000 Prepaid rent 5,000 4,000 Printing equipment 154,000 130,000 Accumulated depr.equipment (35,000) (25,000) Copyrights 46,000 50,000 Total assets $313,000 $295,000 Accounts payable $ 46,000 $ 42,000 Income taxes payable 4,000 6,000 Wages payable 8,000 4,000 Short-term loans payable 8,000 10,000 Long-term loans payable 60,000 67,000 Common stock, $10 par 100,000 100,000 Contributed capital, common stock 30,000 30,000 Retained earnings 57,000 36,000 $313,000 $295,000 Cash Total liabilities & stockholders' equity Andrews Inc. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2010 Sales $338,150 Cost of goods sold 175,000 Gross margin 163,150 Operating expenses 120,000 Operating income Interest expense 43,150 $11,400 INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2010 Gain on sale of equipment 2,000 9,400 Income before tax 33,750 Income tax expense Net income 6,750 $ 27,000 Additional information: 1. Dividends in the amount of $6,000 were declared and paid during 2010. 2. Depreciation expense and amortization expense are included in operating expenses. 3. No unrealized gains or losses have occurred on the investments during the year. 4. Equipment that had a cost of $30,000 and was 70% depreciated was sold during 2010. Instructions Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.) E23-14 (SCFIndirect Method) Data for Andrews Inc. are presented in E23-13. Instructions Prepare a statement of cash flows using the indirect method. SOLUTION EXERCISE 23-13 ANDREWS INC. Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Less: Cash received from customers.......................... Cash paid to suppliers.................................................. Cash paid for operating expenses............................... Cash paid for interest................................................... Cash paid for income taxes.......................................... Net cash provided by operating activities.................. Cash flows from investing activities Sale of equipment [$30,000 - ($30,000 X .7)] + $2,000........................... Purchase of equipment [$154,000 - ($130,000 - $30,000)]............................ Purchase of available-for-sale investments................ $325,150a $151,000b 82,000c 11,400c 8,750d 11,000 (54,000) (17,000) 253,150a $ 72,000a Net cash used by investing activities........................... (60,000) Cash flows from financing activities Principal payment on short-term loan....................... Principal payment on long-term loan......................... Dividend payments....................................................... Net cash used by financing activities.......................... (2,000) (7,000) (6,000) (15,000) Net decrease in cash................................................................. Cash, January 1, 2010.............................................................. Cash, December 31, 2010......................................................... (3,000) 9,000 $ 6,000 a Sales - Increase in accounts receivable............................................ Cash received from customers................................................ $338,150 (13,000) $325,150 b $175,000 (4,000) (20,000) $151,000 c $120,000 1,000 Cost of goods sold.................................................................... - Increase in accounts payable................................................ - Decrease in inventories......................................................... Cash paid to suppliers.............................................................. Operating expenses................................................................... + Increase in prepaid rent......................................................... - Depreciation expense $35,000 - [$25,000 - ($30,000 X .70)]............................... - Amortization of copyright...................................................... - Increase in wages payable...................................................... Cash paid for operating expenses............................................. d Income tax expense................................................................... + Decrease in income taxes payable......................................... Cash paid for income taxes....................................................... (31,000) (4,000) (4,000) $ 82,000 $ $ 6,750 2,000 8,750 SOLUTION EXERCISE 23-14 ANDREWS INC. Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Net income.......................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense................................................. $31,000* Amortization of copyright......................................... 4,000 Gain on sale of equipment......................................... (2,000) Decrease in inventories.............................................. 20,000 Increase in wages payable......................................... 4,000 $27,000 Increase in accounts payable..................................... Increase in prepaid rent............................................. Increase in accounts receivable................................. Decrease in income taxes payable............................. Net cash provided by operating activities................ Cash flows from investing activities Sale of equipment [($30,000 X 30%) + $2,000]............... Purchase of equipment [$154,000 - ($130,000 - $30,000)]................................. Purchase of available-for-sale investments...................... Net cash used by investing activities................................ *$35,000 - [$25,000 - ($30,000 X 70%)] Cash flows from financing activities Principal payment on short-term loan............................. Principal payment on long-term loan.............................. Dividend payments............................................................ Net cash used by financing activities................................ 4,000 (1,000) (13,000) (2,000) 11,000 (54,000) (17,000) (60,000) (2,000) (7,000) (6,000) (15,000) Net decrease in cash..................................................................... Cash, January 1, 2010....................................................... Cash, December 31, 2010............................................................. (3,000) 9,000 $ 6,000 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest Income taxes $11,400 $ 8,750 P23- 4 (SCFDirect Method) Michaels Company had available at the end of 2010 the information on page 1300. Michaels Company COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2010 and 2009 2010 2009 $ 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 Cash 45,000 72,000 COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2010 and 2009 Office supplies 1,000 750 Land 125,000 175,000 Building 350,000 350,000 (105,000) (87,500) 525,000 400,000 Accumulated depreciation Equipment Accumulated depreciation Patent (130,000) (112,000) 45,000 50,000 Total assets $910,600 $871,100 Accounts payable $ 22,000 $ 32,000 Income taxes payable 5,000 4,000 Wages payable 5,000 3,000 Short-term notes payable 10,000 10,000 Long-term notes payable 60,000 70,000 400,000 400,000 20,303 25,853 240,000 220,000 25,000 17,500 123,297 88,747 $910,600 $871,100 Bonds payable Premium on bonds payable Common stock Paid-in capital in excess of par Retained earnings Total liabilities and stockholders' equity Michaels Company INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010 Sales revenue $1,160,000 Cost of goods sold (748,000) 412,000 Gross margin Operating expenses Selling expenses $ 79,200 Administrative expenses 156,700 Depreciation/Amortization expense Total operating expenses 40,500 (276,400) INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010 Income from operations 135,600 Other revenues/expenses Gain on sale of land 8,000 Gain on sale of short-term investment 4,000 Dividend revenue 2,400 Interest expense (51,750) (37,350) Income before taxes 98,250 Income tax expense (39,400) Net income 58,850 Dividends to common stockholders To retained earnings (24,300) $ 34,550 Instructions Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are available-for-sale securities. PROBLEM 23-4 MICHAELS COMPANY Statement of Cash Flows For the Year Ended December 31, 2010 (Direct Method) Cash flows from operating activities Cash receipts: Cash received from customers.................................... $1,152,450a Dividends received....................................................... 2,400 Cash payments: Cash paid to suppliers................................................. 765,000b Cash paid for operating expenses............................... 226,350c Taxes paid..................................................................... 38,400d Interest paid.................................................................. 57,300e Net cash provided by operating activities............................ Cash flows from investing activities Sale of short-term investments ($8,000 + $4,000)....................................................... 12,000 1,154,850 1,087,050 $ 67,800 Sale of land ($175,000 - $125,000) + $8,000............... Purchase of equipment................................................ Net cash used by investing activities.......................... Cash flows from financing activities Proceeds from issuance of common stock.................. Principal payment on long-term debt........................ Dividends paid.............................................................. Net cash used by financing activities.......................... 58,000 (125,000) (55,000) 27,500 (10,000) (24,300) Net increase in cash............................................................... Cash, January 1, 2010........................................................... Cash, December 31, 2010...................................................... a Sales Revenue........................................................................ $1,160,000 - Increase in Accounts Receivable....................................... (7,550) Cash received from customers.............................................. $1,152,450 b Cost of Goods Sold................................................................. $ 748,000 + Increase in Inventory........................................................... 7,000 + Decrease in Accounts Payable............................................ 10,000 Cash paid to suppliers............................................................ $ 765,000 (6,800) $ 6,000 4,000 10,000 PROBLEM 23-4 (Continued) c $276,400 (40,500) (9,000) 1,200 250 (2,000) $226,350 d Income Tax Expense..................................................... - Increase in Income Taxes Payable............................. Taxes paid............................................................... $39,400 (1,000) $38,400 e $51,750 5,550 $57,300 Operating Expenses...................................................... - Depreciation/Amortization Expense......................... - Decrease in Prepaid Rent........................................... + Increase in Prepaid Insurance................................... + Increase in Office Supplies......................................... - Increase in Wages Payable......................................... Cash paid for Operating Expenses............................... Interest Expense............................................................ + Decrease in Bond Premium........................................ Interest paid........................................................... Reconciliation of Net Income to Net Cash Provided by Operating Activities: Net income...................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation/amortization expense...................... Decrease in prepaid rent....................................... Increase in income taxes payable......................... Increase in wages payable..................................... Increase in accounts receivable............................ Increase in inventory............................................. Increase in prepaid insurance............................... Increase in office supplies..................................... Decrease in accounts payable............................... Gain on sale of land............................................... Gain on sale of short-term investments............... Amortization of bond premium............................ Total adjustments........................................... Net cash provided by operating activities............ $58,850 $40,500 9,000 1,000 2,000 (7,550) (7,000) (1,200) (250) (10,000) (8,000) (4,000) (5,550) 8,950 $67,800 P23-8 (SCFDirect and Indirect Methods) Comparative balance sheet accounts of Sharpe Company are presented below. Sharpe Company COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2010 2009 $ 70,000 $ 51,000 155,000 130,000 Merchandise Inventory 75,000 61,000 Investments (Available-for-sale) 55,000 85,000 Equipment 70,000 48,000 145,000 145,000 40,000 25,000 Cash Accounts Receivable Buildings Land Totals $610,000 $545,000 Credit Balances Allowance for Doubtful Accounts $ 10,000 $ 8,000 Accumulated DepreciationEquipment 21,000 14,000 Accumulated DepreciationBuilding 37,000 28,000 Accounts Payable 66,000 60,000 Income Taxes Payable 12,000 10,000 Long-Term Notes Payable 62,000 70,000 310,000 260,000 92,000 95,000 Common Stock Retained Earnings Totals $610,000 $545,000 Additional data: 1. Equipment that cost $10,000 and was 60% depreciated was sold in 2010. 2. Cash dividends were declared and paid during the year. 3. Common stock was issued in exchange for land. 4. Investments that cost $35,000 were sold during the year. 5. There were no write-offs of uncollectible accounts during the year. Sharpe's 2010 income statement is as follows. Sales $950,00 0 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) Income before taxes 12,000 112,000 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. PROBLEM 23-8 (a) Net Cash Provided by Operating Activities Cash receipts from customers Cash payments: Cash payments to suppliers Cash payments for operating expenses Cash payments for income taxes Net cash provided by operating activities (1) (Sales) less (Increase in Accounts Receivables) $950,000 - $25,000 = $925,000 $925,000 (1) $608,000 (2) 226,000 (3) 43,000 (4) 877,000 $ 48,000 (2) (Cost of Goods Sold) plus (Increase in Inventory) less (Increase in Accounts Payable) $600,000 + $14,000 - $6,000 = $608,000 (3) (Operating Expenses) less (Depreciation Expense) less (Bad Debt Expense) $250,000 - $22,000* - $2,000 = $226,000 (4) (Income Taxes) less (Increase in Income Taxes Payable) $45,000 - $2,000 = $43,000 *$21,000 - [$14,000 - ($10,000 X .60)] $37,000 - $28,000 = $13,000 Equipment depreciation = 9,000 Building depreciation $22,000 PROBLEM 23-8 (Continued) (b) SHARPE COMPANY Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Net income.................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense........................................... Gain on sale of investments................................. Loss on sale of equipment................................... Increase in accounts receivable (net).................. Increase in inventory........................................... Increase in accounts payable............................... Increase in income taxes payable........................ Net cash provided by operating activities.................. Cash flows from investing activities Purchase of investments [$55,000 - ($85,000 - $35,000)]............................... Purchase of equipment [$70,000 - ($48,000 - $10,000)]............................... Sale of investments ($35,000 + $15,000)..................... Sale of equipment [$10,000 - ($10,000 X 60%)] - $3,000.................... Net cash provided by investing activities................... Cash flows from financing activities Payment of long-term notes payable.......................... Cash dividends paid [($95,000 + $67,000) - $92,000]............................... Issuance of common stock........................................... Net cash used by financing activities.......................... $67,000 $22,000 (15,000) 3,000 (23,000) (14,000) 6,000 2,000 (19,000) 48,000 (5,000) (32,000) 50,000 1,000 14,000 (8,000) (70,000) 35,000* (43,000) Net increase in cash............................................................... Cash, January 1, 2010........................................................... Cash, December 31, 2010...................................................... 19,000 51,000 $70,000 Noncash investing and financing activities Issuance of common stock for land............................ $15,000 *$310,000 - $260,000 = $50,000; $50,000 - ($40,000 - $25,000) = $35,000