Question
I am good on everything expect for one detail my teacher changed. He also changed the depreciation of the machinery but that was simple. Changes
I am good on everything expect for one detail my teacher changed. He also changed the depreciation of the machinery but that was simple.
"Changes - Ignore additional information item #1. The deficit was not written off and the value of the no-par stock was not reduced." I am not sure how this changes the problem
"1.On April 1, 2017, the existing deficit was written off against paid-in capital created by reducing the stated value of the no-par stock."- I'm not sure what this means other than a potential footnote in the statement
Your working papers from the audit contain the following information:
1.On April 1, 2017, the existing deficit was written off against paid-in capital created by reducing the stated value of the no-par stock.
2.On November 1, 2017, 29,600 shares of no-par stock were sold for $257,000. The board of directors voted to regard $5 per share as stated capital.
3. A patent was purchased for $15,000.
4.During the year, machinery that had a cost basis of $16,400 and on which there was accumulated depreciation of $5,200 was sold for $9,000. No other plant assets were sold during the year.
5.The 12%, $100,000, 20-year bonds were dated and issued on January 2, 2005. Interest was payable on June 30 and Dec 31. They were sold originally at 106 ($106,000). These bonds were retired at 100.9 ($100,900) plus accrued interest on March 31, 2017.
6.The 8%, $125,000, 40-year bonds were dated January 1, 2017, and were sold on March 31 at 97 (less issuance cost of $839) plus accrued interest. Interest is payable semiannually on June 30 and December 31. (Proceeds from bond is $125,000 x .97 - $839 = 121,250 - 839 = 120,411; thus, the total discount on the issue date was 4,589 including issuance costs.)
7.Alexander Corporation acquired 70% control in Crimson Company on January 2, 2017, for $100,000 and used the Equity Method for this investment. Crimson Company reported net income of $15,000 for 2017.
8.Extraordinary repairs to buildings of $7,200 were charged (debited) to Accumulated Depreciation-Buildings.
9.Interest paid in 2017 was $10,500 and income taxes paid were $34,000.
My work
Statement of Cash Flows
For the year ended 12/31/2017
Particulars
Amount
Amount
Net income
(90,000+25,000)
$115,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss on sale of machinery)
$200
Gain on retirement of Bonds
($1,425)
Depreciation Machinery
$50,200
Depreciation Building
$31,200
Patent Amortization
$10,000
Copyright Amortization
$10,000
Amortization of Bond Discount
$87
Amortization of Bond Premium
($75)
Equity in earnings of subsidiary
($10,500)
Increase in Accounts Receivable
($121,124)
Increase in inventory
($131,700)
Increase in Prepaid expenses
($4,000)
Increase in taxes payable
$10,650
Increase in dividends payable
$19,280
Net Cash flow used by Operating Activities
($137,207)
Net cash after operating activities
($22,207)
Cash Flows from Investing Activities:
Sale of machinery
$9,000
Investment in subsidiarity
($100,000)
Additions to building (507,900-434,200)
($127,300)
Major repairs to buildings
($7,200)
Purchase of machinery
($33,400)
Purchase of patent
($15,000)
Increase in cash surrender value of life insurance
($504)
Net cash flow used by investing Activities
($274,404)
Cash flows from financing Activities:
Redemption of Bonds
($100,900)
Sale of bonds less expense of sale
$120,411
Sale of stock
$257,000
Net cash provided by financing activities
$276,511
Decrease or increase in cash
($20,100)
Cash, January 1, 2017
$298,000
Cash, December 31, 2017
$277,900
Cash paid during the year for:
Interest
$10,500
Income taxes
$34,000
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