Problem 23-5

You have completed the field work in connection with your audit of Sweet Corporation for the year ended December 31, 2017. The balance sheet accounts at the beginning and end of the year are shown below.

		Dec. 31, 2017		Dec. 31, 2016			Increase or (Decrease)
Cash		$297,353		$318,860			($21,507)
Accounts receivable		502,284		377,710			124,574
Inventory		793,619		652,700			140,919
Prepaid expenses		12,840		8,560			4,280
Investment in subsidiary		118,235		0			118,235
Cash surrender value of life insurance		2,465		1,926			539
Machinery		221,490		203,300			18,190
Buildings		572,664		436,453			136,211
Land		56,175		56,175			0
Patents		73,830		68,480			5,350
Copyrights		42,800		53,500			(10,700)
Bond discount and issue cost		4,817		0			4,817
		$2,698,572		$2,177,664			$520,908
Income taxes payable		$96,567		$85,172			$11,395
Accounts payable		320,230		299,600			20,630
Dividends payable		74,900		0			74,900
Bonds payable8%		133,750		0			133,750
Bonds payable12%		0		107,000			(107,000)
Allowance for doubtful accounts		37,771		42,800			(5,029)
Accumulated depreciationbuildings		453,680		428,000			25,680
Accumulated depreciationmachinery		185,110		139,100			46,010
Premium on bonds payable		0		2,568			(2,568)
Common stockno par		1,258,534		1,554,924			(296,390)
Paid-in capital in excess of parcommon stock		116,630		0			116,630
Retained earningsunappropriated		21,400		(481,500)			502,900
		$2,698,572		$2,177,664			$520,908

STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2017
January	1, 2017		Balance (deficit)		$(481,500)
March	31, 2017		Net income for first quarter of 2017		26,750
April	1, 2017		Transfer from paid-in capital		454,750
			Balance		0
December	31, 2017		Net income for last three quarters of 2017		96,300
			Dividend declaredpayable January 21, 2018		(74,900)
			Balance		$21,400

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, 31,672 shares of no-par stock were sold for $274,990. The board of directors voted to regard $5 per share as stated capital.
3.		A patent was purchased for $16,050.
4.		During the year, machinery that had a cost basis of $17,548 and on which there was accumulated depreciation of $5,564 was sold for $9,630. No other plant assets were sold during the year.
5.		The 12%, 20-year bonds were dated and issued on January 2, 2005. Interest was payable on June 30 and December 31. They were sold originally at 106. These bonds were redeemed at 100.9 plus accrued interest on March 31, 2017.
6.		The 8%, 40-year bonds were dated January 1, 2017, and were sold on March 31 at 97 plus accrued interest. Interest is payable semiannually on June 30 and December 31. Expense of issuance was $898.
7.		Sweet Corporation acquired 70% control in Crimson Company on January 2, 2017, for $107,000. The income statement of Crimson Company for 2017 shows a net income of $16,050.
8.		Major repairs to buildings of $7,704 were charged to Accumulated DepreciationBuildings.
9.		Interest paid in 2017 was $11,235 and income taxes paid were $36,380.

From the information given, prepare a statement of cash flows using the indirect method. A worksheet is not necessary, but the principal computations should be supported by schedules or general ledger accounts. The company uses straight-line amortization for bond interest.

Equity in Earnings of Subsidiary 20,630 Increase in Accounts Payable Net Cash Used by Operating Activities Cash Flows from Investing Activities Sale of Machinery Investment in Subsidiary Addition to Buildings Major Repairs to Building Purchase of Machinery Purchase of Patent Increase in Cash Surrender Value of Life Insurance Net Cash Used by Investing Activities Cash Flows from Financing Activities Redemption of Bonds Sale of Bonds Less Expense of Sale Net Cash Provided by Financing Activitiesi Net Decrease in Cash Cash, January 1, 2017 Cash, December 31, 2017 Supplemental disclosures of cash flow information: Cash Paid During the Year for Interest Cash Paid During the Year for Income Taxes Noncash Investing and Financing Activities Reduction in Stated Value of Stock to Eliminate Deficit Equity in Earnings of Subsidiary 20,630 Increase in Accounts Payable Net Cash Used by Operating Activities Cash Flows from Investing Activities Sale of Machinery Investment in Subsidiary Addition to Buildings Major Repairs to Building Purchase of Machinery Purchase of Patent Increase in Cash Surrender Value of Life Insurance Net Cash Used by Investing Activities Cash Flows from Financing Activities Redemption of Bonds Sale of Bonds Less Expense of Sale Net Cash Provided by Financing Activitiesi Net Decrease in Cash Cash, January 1, 2017 Cash, December 31, 2017 Supplemental disclosures of cash flow information: Cash Paid During the Year for Interest Cash Paid During the Year for Income Taxes Noncash Investing and Financing Activities Reduction in Stated Value of Stock to Eliminate Deficit