Chapter 14, Problem 2ATC

To determine

The operating activity, investing activity, and financing activity.

Explanation of Solution

The calculation of cash flow is as follows:

Table 1

Working note:

The calculation of total cash received from sales:

$\begin{array}{c}\text{Cash received from sales}=\text{Sales}-\left(\begin{array}{l}\text{Accounts receivable 2014}\\ -\text{Accounts receivable 2013}\end{array}\right)\\ =\$1,050,000-(\$103,200-\$85,000)\\ =\$1,050,000-\$18,200\\ =\$1,031,800\end{array}$

Hence, the cash received from sales is $1,031,800.

…… (1)

The calculation of inventory purchased:

$\begin{array}{c}\text{Inventory purchased}=\text{Cost of goods sold}+\left(\begin{array}{c}\left(\text{Inventory 2014}-\text{Inventory 2013}\right)+\\ \left(\begin{array}{l}\text{Accounts payable 2013}-\\ \text{Accounts payable 2014}\end{array}\right)\end{array}\right)\\ =\$766,500+(\$186,400-\$171,800)+(\$66,200-\$36,400)\\ =\$766,500+\$14,600+\$29,800\\ =\$810,900\end{array}$

Hence, the inventory purchased is $810,900.

…… (2)

The calculation of operating expenses:

$\begin{array}{c}\text{Operating expenses}=\text{Total operating expenses}-\text{Depreciation expenses}\\ =\$202,400-\$90,000\\ =\$112,400\end{array}$

Hence, the operating expenses is $112,400.

…… (3)

The calculation of treasury stock:

$\begin{array}{c}\text{Treasury stock}=\left(\text{Treasury stock 2013}-\text{Treasury stock 2014}\right)\\ =\$40,000-\$30,000\\ =\$10,000\end{array}$

Hence, the treasury stock is $10,000.

…… (4)

The calculation of common stock:

$\begin{array}{c}\text{Common stock}=\left(\text{Common stock 2014}-\text{Treasury stock 2013}\right)\\ =\$240,000-\$200,000\\ =\$40,000\end{array}$

Hence, the common stock is $40,000.

…… (5)

The calculation of preferred stock:

$\begin{array}{c}\text{Preferred stock}=\left(\begin{array}{l}\left(\text{Preferred stock 2014}-\text{Preferred stock 2013}\right)+\\ \left(\text{Preferred stock 2014}-\text{Preferred stock 2013}\right)\end{array}\right)\\ =\left(\$110,000-\$100,000\right)+\left(\$34,400-\$26,800\right)\\ =\$10,000+7,600\\ =\$17,600\end{array}$

Hence, the preferred stock is $17,600.

…… (6)

The calculation of paid dividend:

$\begin{array}{c}\text{Paid dividend}=\left(\text{Net income}-\left(\text{Retained earnings 2014}-\text{Retained earnings 2013}\right)\right)\\ =\$107,100-\left(\$333,000-\$326,800\right)\\ =\$107,100-\$68,600\\ =\$38,500\end{array}$

Hence, the paid dividend is $38,500.

…… (7)

a

To determine

The cost per share of the treasury stock

Explanation of Solution

The calculation of cost per share of the treasury stock is as follows:

$\begin{array}{c}\text{Cost per share}=\frac{\text{Treasury stock 2013}-\text{Treasury stock 2014}}{\text{Number of shares sold}}\\ =\frac{\$40,000-\$30,000}{100}\\ =\frac{\$10,000}{100}\\ =\$100\end{array}$

Hence, the cost per share is $100.

…… (1)

b

To determine

The issue price per share of the preferred stock.

Explanation of Solution

The issue price of the preferred stock is $88 (2) per share.

Working note:

The calculation of number of preferred stocks is as follows:

$\begin{array}{c}\text{Number of preferred stock}=\frac{\text{Preferred stock 2014}-\text{Preferred stock 2013}}{\text{Issued price}}\\ =\frac{\$110,000-\$100,000}{50}\\ =\frac{\$10,000}{50}\\ =200\end{array}$

Hence, the number of preferred stocks is 200.

The calculation of excess of par is as follows:

$\begin{array}{c}\text{Excess of par}=\left(\begin{array}{l}\left(\text{Preferred stock 2014}-\text{Preferred stock 2013}\right)\\ +\left(\text{Excess of preferred stock 2014}-\text{Excess of preferred stock 2013}\right)\end{array}\right)\\ =\left(\$110,000-\$100,000\right)+\left(\$34,400-\$26,800\right)\\ =\$10,000+\$7,600\\ =\$17,600\end{array}$

Hence, the excess of par is $17,600.

The calculation of issue price of preferred stock is as follows:

$\begin{array}{c}\text{issue price of preferred stock}=\frac{\text{Excess of par}}{\text{Number of preferred stock}}\\ =\frac{\$17,600}{200}\\ =\$88\text{ per share}\end{array}$

Hence, the issue price of preferred stocks is $88 per share.

…… (2)

c

To determine

The book value of equipment sold

Explanation of Solution

The book value of equipment sold is $10,000 (3).

Working note:

The calculation of book value of equipment sold is as follows:

$\begin{array}{c}\text{Book value of equipment sold}=\text{Sold price of equipment}-\text{Accumulated depreciation}\\ =\$30,000-\$20,000\\ =\$10,000\end{array}$

Hence, the book value of equipment sold is $10,000.

…… (3)