Intermediate Accounting 2
1. Preparation of a Statement of Cash Flows. The president of The I-lardcastle Corporation understands that a statement of cash ows is one of the required nancial statements. He asks your assistance in preparing the statement. He provides you with the following comparative balance sheets for 2011 and 2010, as well as the income statement for the year ended December 31, 2011. THE HARDCASTLE CORPORATION Comparative Balance Sheets Degem Er 31, Assets 2011 2010 Current assets: Cash $ 5,200 $ 4,200 Accounts receivable 20,000 28,000 Inventory 47,000 33,000 Prepaid expenses 1,500 1,000 Total current assets 3 73,700 S 66,200 Property, plant, and equipment: Land $ 3,800 S 2,800 Machinery and equipment, net 8,700 8 ,5 00 Buildings, net 42,000 47,000 Total property, plant, and equipment S 54.500 S 58,300 Other assets: Patents, net 3 1,500 S 1,700 Total assets $122, 200 $126,200 Liabilities and Owners' Equity 2011 2010 Current liabilities: Notes payable $ 4,000 S 5,800 Clirrent maturities of long-term debt 2,000 1,900 Accounts payable 5,500 6,000 Accrued liabilities 15,000 13,000 Total current liabilities S 26,500 S 26,700 Long-term debt: 3 18,000 S 30,000 Stockholders' equity: Common stock, no par $ 61,000 $ 60,000 Retained earnings 24,200 2,5 00 Total stockholders' equity 3 85,200 S 69,500 Total liabilities and stockholders' equity $129, 700 S126,200 (continued a) THE HARDCASTLE CORPORATION Statement of Income and Retained Earnings For the Year Ended December 31, 2011 Revenues Sales $174,000 Expenses Cost of goods sold $112,000 General and administrative 26,000 Depreciation and amortization 13,000 Interest 2,000 Loss on early retirement of long-term debt 400 Loss on sale of machinery and equipment 200 153,600 Income before taxes S 20,400 Less: Taxes 4,000 Net income 3 16,400 Retained earnings, January 1 9,500 Less: Dividends 1 1, 200: Retained earnings, December 31 $ 24,200 In addition, the president has provided you with the following information: 1. 2\".\" Included in depreciation and amortization expense are: Building depreciation $12,000 Machinery and equipment depreciation 800 Patent amortization 200 Machinery and equipment with a book value of $300 was sold for cash. (Hint: Use the related Loss on the Income Statement to gure out the cash amount.) The additional land was acquired in exchange for common stock. No other stock transactions took place. Long-term debt with a face value of $10,000 was retired early. (Again use the related Loss to help you gure out the cash amount.) Short-term notes payable were issued for the purchase of machinery during 2009. (Hint: This means that the short-term notes should be associated with a long-term item (PPE) and you should not use it in your adjustments to Net Income when doing the indirect approach to the operations section.) All other changes represent normal balance sheet transactions. There is no interest accrual at year-end. Reguired: A. Prepare the entire Statement of Cash Flows for the year ended December 31, 2011. Use the Direct Method for the operations section. Hints/Suggestions: 1) In order to do the direct method for the operations section some assumptions will need to be made concerning what balance sheet accounts are directly associated with what income statement accounts. Please make the following assumptions: Sales go with Accounts Receivables. Cost of Goods Sold go with Inventory and Accounts Payable. General and Administrative Expenses go with Prepaid Expenses and Accrued Liabilities. You may need to make other similar assumptions that you feel are reasonable. 2) When dealing with long-term debt, combine the current maturity balance with the amount shown under long-term debt before determining cash inows or outows for long-term debt. B. Prepare a supplemental schedule showing how the operations section of the statement would have appeared if the Indirect Method had been used
