Question
Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, hammer, and crescent wrench) exclusively through television advertising. The comparative income statements and balance
Miracle Tool, Inc., sells a single product (a combination screwdriver, pliers, hammer, and crescent wrench) exclusively through television advertising. The comparative income statements and balance sheets are for the past two years.
Additional Information
The following information regarding the companys operations in 2018 is available from the companys accounting records.
Early in the year, the company declared and paid a $4,000 cash dividend.
During the year, marketable securities costing $15,000 were sold for $14,000 cash, resulting in a $1,000 nonoperating loss.
The company purchased plant assets for $20,000, paying $2,000 in cash and issuing a note payable for the $18,000 balance.
During the year, the company repaid a $10,000 note payable, but incurred an additional $18,000 in long-term debt as described in Transaction 3.
The owners invested $15,000 cash in the business as a condition of the new loans described in Transaction 4.
| MIRACLE TOOL, INC. | ||||||||
| COMPARATIVE INCOME STATEMENT | ||||||||
| FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018 | ||||||||
| 2017 | 2018 | |||||||
| Sales | $ | 500,000 | $ | 350,000 | ||||
| Less: Cost of goods sold | 200,000 | 140,000 | ||||||
| Gross profit on sales | $ | 300,000 | $ | 210,000 | ||||
| Less: Operating expenses (including depreciation of $34,000 in 2017 and $35,000 in 2018) | 260,000 | 243,000 | ||||||
| Loss on sale of marketable securities | 0 | 1,000 | ||||||
| Net income (loss) | $ | 40,000 | $ | (34,000 | ) | |||
| MIRACLE TOOL, INC. COMPARATIVE BALANCE SHEETS | |||||||||||
| December 31, | |||||||||||
| 2017 | 2018 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 10,000 | $ | 60,000 | |||||||
| Marketable securities | 20,000 | 5,000 | |||||||||
| Accounts receivable | 40,000 | 23,000 | |||||||||
| Inventory | 120,000 | 122,000 | |||||||||
| Plant and equipment (net of accumulated depreciation) | 300,000 | 285,000 | |||||||||
| Totals | $ | 490,000 | $ | 495,000 | |||||||
| Liabilities & Stockholders' Equity | |||||||||||
| Accounts payable | $ | 50,000 | $ | 73,000 | |||||||
| Accrued expenses payable | 17,000 | 14,000 | |||||||||
| Note payable | 245,000 | 253,000 | |||||||||
| Capital stock (no par value) | 120,000 | 135,000 | |||||||||
| Retained earnings | 58,000 | 20,000 | |||||||||
| Totals | $ | 490,000 | $ | 495,000 | |||||||
Required:
a. Prepare a worksheet for a statement of cash flows.
b. Prepare a statement of cash flows for 2018 by the indirect method.
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Auditing Principles A Systems Based Approach
Authors: Howard F. Stettler
5th Edition
0130517224, 9780130517227
