MANAGERIAL ACCOUNTING HANDOUT PROBLEM 14 Score Name Section

MANAGERIAL ACCOUNTING HANDOUT PROBLEM 14 Score Name Section Problem (10 points). Atached are the comparative balance sheets for Neeson Corporation for the years ending December 31, 20X6 and 20X7. The following additional information is also available for fiscal year 20x7 NEESON CORPORATION ADDITIONAL INFORMATION REQUIRED FOR PREPARATION OF STATEMENT OF CASH FLOWS FOR YEAR ENDING DECEMBER 31, 20x7 (1 ) Equipment that originally cost $ 11,000 and was 40% depreciated at the time ofdisposal was sold for $2,500 (2) (3) S15,000 of the long term note payable was paid by issuing common stock. On January 1 . 20X1 the building was completely destroyed by a flood. Insurance proceeds on the building were S33,000 after $4,000 in taxes on the gain wcre paid. (4) Long term investments were sold at S2,500 above their cost. (5) A long term note was issued in the amount of S16,000 for the purchase of equipment. The company also made additional borrowings using long term notes during the year All other purchases of equipment were made in cash. (6) The company declared dividends of S10,000, which were paid during the year along with the dividends that were payable at the beginning of the year. All other changes to the retained carnings account were due to net income for the period. (7) REQUIRED: Prepare a statement of cash flows for the company for the year ending December 31 20X7, in proper form, using the indirect method. Be sure to include a schedule of noncash investing and financing activities

Solution

Cash Flow from Operating Activities :-

Net Income (Note 1)

20750

Adjustments:-

Loss on sale of Equipment (11000 * 60%) - 2500

4100

Gain on sale of Long term Investment

-2500

Gain on Building Destroy and Insurance claim recd (net of tax)

(33000 – [29750 – 6000])

-9250

Depreciation Exp

[Accumulated Dep Ending bal (2000) - Acc Dep Beg Bal (4500) + Acc Dep on Equipment sold (11000 * 40%)]

1900

Patent Ammortisation

1250

Increase in A/c Receivable

-2250

Decrease Allowance for Doubtful Debts

-1500

Increase Inventory

-3000

Increase A/c Payable

2000

Decrease Short term Note Payable

-1000

Cash Flow from Operating Activities (A)

10500

10500

Cash Flow from Investing Activities :-

Sale of Equipment

2500

Sale of Long term Investment (3000 + 2500)

5500

Purchase Equipment [Ending Equipment (40000) + Equipment Sold (11000) – Beginning Equipment (20000) – Note payable issue (16000)]

-15000

Building Destroy (29750 – 6000 + 9250)

33000

Cash Flow from Investing Activities (B)

26000

26000

Cash Flow from Financing Activities :-

Note Payable Long Term (Note 2 )

5000

Dividend Paid (10000 + 6000)

-16000

Cash Flow from Financing Activities (C)

-11000

-11000

Net cash Inflow

25500

(+) Beginning cash Balance

13000

Ending Cash Balance

38500

Schedule of Non Cash Investing & Financing Activities :-

Purchase of Equipment by issuing Long term Note Payable

16000

Repaid Long Term Note Payable by issuing common stock

15000

Note1 :-Net Income :-

Retained Earning Ending Balance

15750

(+) Dividend Declared

10000

(-) Retained Earning Beginning Balance

5000

Net Income

20750

Note1 :-Long Term Note Payable :-

Ending Note Payable

31000

(+) Paid by common stock

15000

(-) Issue for Equipment

16000

(-) Beginning Note Payable

25000

Cash Flow from Operating Activities :-
Net Income (Note 1)	20750
Adjustments:-
Loss on sale of Equipment (11000 * 60%) - 2500	4100
Gain on sale of Long term Investment	-2500
Gain on Building Destroy and Insurance claim recd (net of tax) (33000 – [29750 – 6000])	-9250
Depreciation Exp [Accumulated Dep Ending bal (2000) - Acc Dep Beg Bal (4500) + Acc Dep on Equipment sold (11000 * 40%)]	1900
Patent Ammortisation	1250
Increase in A/c Receivable	-2250
Decrease Allowance for Doubtful Debts	-1500
Increase Inventory	-3000
Increase A/c Payable	2000
Decrease Short term Note Payable	-1000
Cash Flow from Operating Activities (A)	10500	10500
Cash Flow from Investing Activities :-
Sale of Equipment	2500
Sale of Long term Investment (3000 + 2500)	5500
Purchase Equipment [Ending Equipment (40000) + Equipment Sold (11000) – Beginning Equipment (20000) – Note payable issue (16000)]	-15000
Building Destroy (29750 – 6000 + 9250)	33000
Cash Flow from Investing Activities (B)	26000	26000
Cash Flow from Financing Activities :-
Note Payable Long Term (Note 2 )	5000
Dividend Paid (10000 + 6000)	-16000
Cash Flow from Financing Activities (C)	-11000	-11000
Net cash Inflow		25500
(+) Beginning cash Balance		13000
Ending Cash Balance		38500