Chapter 21, Problem 12P

1.

To determine

Prepare a spreadsheet for the cash flow statement of A Company for the quarter ended March 31, 2017.

Explanation of Solution

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Prepare a spreadsheet for the statement of cash flow of A Company.

Table (1)

Table (2)

Working notes:

1. a. Net income for the quarter ended is $64,018.
2. b. Calculate the Depreciation expenses.

   $\begin{array}{c}\text{Depreciation Expenses}=\left(\begin{array}{l}\text{Beginning year's accumulated depreciation}\\ -\text{ Ending year's accumulated depreciation }\end{array}\right)\\ =\$15,000-\$16,250\\ =\$1,250\end{array}$

3. c. Calculate the gain on sale of marketable investment.

   $\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from sale }\\ \text{of Marketable Investments}\end{array}\right)=\left(\begin{array}{l}\text{Marketable Investments}\\ \text{+Gain on sale of marketable investment}\end{array}\right)\\ =\left(\$9,200+\$2,400\right)\\ =\$11,600\end{array}$

4. d. Calculate the increase in accounts receivable.

   $\begin{array}{c}\text{Increase in Accounts Receivable}=\left(\begin{array}{l}\text{Beginning year's accounts receivable}\\ -\text{Ending year's accounts receivable}\end{array}\right)\\ =\$24,320-\$49,320\\ =\$25,000\end{array}$

5. e. Calculate the increase in inventory.

   $\begin{array}{c}\text{Increase in Inventory}=\left(\begin{array}{l}\text{Beginning year's inventory}\\ -\text{Ending year's inventory}\end{array}\right)\\ =\$31,090-\$48,590\\ =\$17,500\end{array}$

6. f. Calculate the increase in accounts payable.

1. g. Income taxes payable is $13,529.

h-1. Calculate the issuance of common stock for preferred stock.

$\begin{array}{c}\left(\begin{array}{l}\text{Conversion of Preferred stock }\\ \text{to Common stock}\end{array}\right)=\left(\begin{array}{l}\text{Beginning year's common stock}\\ -\text{Ending year's common stock}\end{array}\right)\\ =\$80,000-\$110,000\\ =\$30,000\end{array}$

h-2. Calculate the conversion of preferred stock to common stock is $30,000.

1. i. Calculate the proceeds from condemnation of land.

  $\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from }\\ \text{condemnation of land}\end{array}\right)=\left(\begin{array}{l}\text{Sale of land }\\ +\text{Gain from condemnation of land}\end{array}\right)\\ =\$21,300+\$8,560\\ =\$29,860\end{array}$

  $\begin{array}{c}\text{Sale of Land}=\left(\begin{array}{l}\text{Beginning year's sale of land}\\ -\text{Ending year's sale of land}\end{array}\right)\\ =\$40,000-\$18,700\\ =\$21,300\end{array}$

1. j. The sale of equipment is $81,500.
2. k. Calculate the proceeds from issuance of bonds payable.

   $\begin{array}{c}\left(\begin{array}{l}\text{Proceeds from Issuance }\\ \text{of Bonds Payable}\end{array}\right)=\left(\begin{array}{l}\text{Beginning year's bonds payable}\\ -\text{Ending year's bonds payable}\end{array}\right)\\ =\$50,000-\$115,000\\ =\$65,000\end{array}$

3. l. Depreciated equity investment is $480.
4. m. Calculate the equity in earnings.

$\begin{array}{c}\text{Equity in Earnings}=\left(\begin{array}{l}\text{30\% of Investment owned }\\ \text{+Depreciated equity investment}\end{array}\right)\\ =\$5,880+\$480\\ =\$6,360\end{array}$

1. n. Calculate the bond discount amortization.

$\begin{array}{c}\text{Bond Discount Amortization}=\left(\begin{array}{l}\text{Beginning year's discount on bonds payable}\\ -\text{Ending year's discount on bonds payable}\end{array}\right)\\ =\$2,300-\$2,150\\ =\$150\end{array}$

1. o. Step1: Calculate the unrealized value of marketable investments $\begin{array}{c}\left(\begin{array}{l}\text{Unrealized Decrease in }\\ \text{Value of Marketable Investments}\end{array}\right)=\left(\begin{array}{l}\text{Beginning year's Unrealized Decrease in }\\ \text{Value of Marketable Investments}\\ -\text{Ending year's Unrealized Decrease in }\\ \text{Value of Marketable Investments}\end{array}\right)\\ =\$1,000-\$900\\ =\$100\end{array}$

Step 2: Calculate the sale of marketable securities.

$\text{Allowance for Change in Value = }\left(\begin{array}{l}\text{Cost of marketable securities}\\ -\text{Fair value of marketable securities}\end{array}\right)$

1. p. Dividends declared are $8,000.

q. Calculate the deferred taxes payable.

$\begin{array}{c}\left(\begin{array}{l}\text{Increase in }\\ \text{deferred taxes payable}\end{array}\right)=\left(\begin{array}{l}\text{Beginning year's deferred taxes payable}\\ -\text{Ending year's deferred taxes payable}\end{array}\right)\\ =\$510-\$846\\ =\$336\end{array}$

r. Net increase in cash for quarter ended is $54,100.

Conclusion

Therefore, the net increase in cash is $54,420.

2.

To determine

Prepare the statement of cash flows using indirect method of A Company for the quarter ended March 31, 2016.

Explanation of Solution

Prepare the statement of cash flows using indirect method.

A Company
Statement of cash flow
For quarter ended December 31, 2016
Particulars		Amount ($)	Amount ($)
Operating Activities:
Net income		64,018
Adjustment for non- cash income items:
Add: Depreciation expense		1,250
Bound discount amortization		150
Increase in deferred taxes payable		336
Less: Equity in earnings of 30% owned company		(5,880)
Gain on sale of marketable investments		(2,400)
Ordinary gain on condemnation of land		(8,560)
Adjustment for cash flow effects from working capital items:
Increase in accounts receivable		(25,000)
Increase in inventory		17,500)
Increase in accounts payable		17,197
Increase in income taxes payable		13,529
Net cash provided by operating activities			37,140
Cash flow from investing activities:
Proceeds from sale of marketable investments		$11,600
Proceeds from condemnation of land		29,860
Payment for purchase of equipment		(81,500)
Net cash used for investing activities			(40,040)
Cash flow from financing activities:
Issuance of  bonds payable		65,000
Payment of dividends		(8,000)
Net cash used for financing activities			57,000
Net increase in cash (Schedule 1)			54,100
Cash , January 1, 2016			25,300
Cash, December 31, 2016			79,400
Schedule 1: Investing and financing activities not affecting cash
Financing activities:
Conversion of preferred stock to common stock			(30,000)
Issuance of common stock for preferred stock			30,000

Table (3)

Conclusion

Therefore, the net increase in cash is $54,100.