Mastery Problem: Statement of Cash Flows

Championship Boxing, Inc.

Championship Boxing, Inc. is a small manufacturer of cardboard boxes of all sizes. You have reported for your first day of work, and the company is in an uproar. Yearly financial statements are being prepared, but a computer malfunction of the company's new BOX-9000 computer has inadvertently erased parts of the company's balance sheet, along with almost all related data except the company'sstatement of cash flows. The IT department is working to retrieve earlier backups, but estimates that the reconstruction of the data will take about 24 hours.

Unfortunately, financial statements are to be presented at a stockholders' meeting in one hour. The company uses theindirect methodto prepare its statement of cash flows (rather than thedirect method), so your new supervisor believes the missing data for the balance sheet can be prepared using the statement of cash flows. You are assigned this task, since you were top student in your business school class. Meanwhile, the supervisor will go to the stockholders' meeting and give some introductory remarks.

In addition to the statement of cash flows, the following data survived the computer mishap:

• The investments were sold for $280,000 cash.
• Equipment was acquired for $152,080 cash.
• Land was acquired for $326,000 cash.
• There were no disposals of equipment during the year.
• 12,500 shares of common stock were sold for cash during the year.
• There was a $96,000 debit to Retained Earnings for cash dividends declared.

Statement of Cash Flows

Your supervisor has provided you with the following statement of cash flows, prepared using the indirect method. Recall that the statement of cash flows consists of three sections:cash flows from operating activities,cash flows from investing activities, andcash flows from financing activities. Review the statement, and then proceed to the next panel.

Championship Boxing, Inc.

Statement of Cash Flows

For the Year Ended December 31, 20Y8Cash flows from (used for) operating activities:Net income$186,540Adjustments to reconcile net income to net cash flow from operating activities:Depreciation18,400Gain on sale of investments(50,000)Changes in current operating assets and liabilities:Increase in accounts receivable(25,390)Increase in inventories(33,550)Increase in accounts payable41,130Decrease in accrued expenses payable(12,480)Net cash flow from operating activities$124,650Cash flows from (used for) investing activities:Cash received from sale of investments$280,000Cash paid for purchase of land(326,000)Cash paid for purchase of equipment(152,080)Net cash flow used for investing activities(198,080)Cash flows from (used for) financing activities:Cash received from sale of common stock$187,500Cash paid for dividends(91,200)Net cash flow from financing activities96,300Net increase in cash$22,870Cash balance, January 1, 20Y8585,920Cash balance, December 31, 20Y8$608,790

Balance Sheet

Using the information on above, complete the following comparative balance sheet.

Championship Boxing, Inc.

Comparative Balance Sheet

December 31, 20Y8 and 20Y720Y820Y7AssetsCash$fill in the blank 1

$585,920Accounts receivable (net)230,950fill in the blank 2

Inventoriesfill in the blank 3

618,320Investments0fill in the blank 4

Landfill in the blank 5

0Equipment705,200fill in the blank 6

Accumulated depreciation-equipment(166,400)fill in the blank 7

Total assets$fill in the blank 8

$fill in the blank 9

LiabilitiesAccounts payable (merchandise creditors)$fill in the blank 10

$391,800Accrued expenses payable (operating expenses)41,150fill in the blank 11

Dividends payablefill in the blank 12

19,200Total liabilities$498,080$fill in the blank 13

Stockholders' EquityCommon stock, $4 par$fill in the blank 14

$100,000Paid-in capital in excess of parfill in the blank 15

280,000Retained earningsfill in the blank 16

fill in the blank 17

Total stockholders' equity$1,858,330$fill in the blank 18

Total liabilities and stockholders' equity$fill in the blank 19

$fill in the blank 20