Question

Comprehensive

Angel Company has prepared its financial statements for the year ended December 31, 2019, and for the 3 months ended March 31, 2020. You have been asked to prepare a statement of cash flows for the 3 months ended March 31, 2020. The company's balance sheet data at December 31, 2019, and March 31, 2020, and its income statement data for the 3 months ended March 31, 2020, follow. You are satisfied as to the correctness of the amounts presented.

Balance Sheet Data
December 31,
2019 December 31,
2020
Cash $ 25,300 $ 79,400
Marketable investments (at cost) 17,500 8,300
Allowance for decrease in value (1,000) (900)
Accounts receivable 24,320 49,320
Inventory 31,090 48,590
Total current assets $ 97,210 $184,710
Land 40,000 18,700
Building 250,000 250,000
Equipment — 81,500
Accumulated depreciation (15,000) (16,250)
Equity investment (30% ownership of Titan Company) 61,220 67,100
Other assets 15,100 15,100
Totals $448,530 $600,860
Accounts payable $ 21,220 $ 38,417
Income taxes payable — 13,529
Total current liabilities $ 21,220 $ 51,946
Bonds payable 50,000 115,000
Discount on bonds payable (2,300) (2,150)
Deferred taxes payable 510 846
Preferred stock 30,000 —
Common stock 80,000 110,000
Unrealized decrease in value of marketable investments (1,000) (900)
Dividends declared — (8,000)
Retained earnings 83,100 147,118
Other liabilities 187,000 187,000
Totals $448,530 $600,860

Income Statement Data
for the 3 Months Ended
March 31, 2020
Sales $242,807
Gain on sale of marketable investments 2,400
Equity method earnings from Titan investment (30% ownership) 5,880
Ordinary gain on condemnation of land 8,560
Total revenues $259,647
Cost of sales $157,354
General and administrative expenses 22,010
Depreciation 1,250
Interest expense 1,150
Income taxes 13,865
Total expenses $195,629
Net income $ 64,018
Your discussion with the company's controller and a review of the financial records have revealed the following information:

On January 7, 2020, the company sold marketable securities for cash. These securities had cost $9,200, and had a fair value of $8,600 at December 31, 2019. The remaining marketable securities were adjusted to their $7,400 fair value on March 31, 2020, by adjustment of the related allowance account. The dividend and interest revenue on these marketable securities is not material.
The company's preferred stock was converted into common stock at a rate of one share of preferred for two shares of common. The preferred stock and common stock have par values of $2 and $1, respectively.
On January 16, 2020, 3 acres of land were condemned. An award of $29,860 in cash was received on March 24, 2020. Purchase of additional land as a replacement is not contemplated by the company.
On March 25, 2020, the company purchased equipment for cash.
On March 26, 2020, bonds payable were issued by the company at par for cash.
The equity investment representing a 30% ownership interest in Titan Company included an amount of $9,600 attributable to an increase in the recorded value of depreciable assets at December 31, 2019. This increase is being depreciated at a quarterly rate of $480.
Required:

Prepare a spreadsheet to support the statement of cash flows for Angel for the 3 months ended March 31, 2020. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments.

Answer 1

To prepare the statement of cash flows for the 3 months ended March 31, 2020, we need to use the indirect method. The statement of cash flows shows the inflows and outflows of cash during the period and is divided into three sections: operating activities, investing activities, and financing activities.

First, we need to calculate the change in cash from December 31, 2019, to March 31, 2020:

Change in cash = Cash at March 31, 2020 - Cash at December 31, 2019
Change in cash = $79,400 - $25,300
Change in cash = $54,100

Next, we need to analyze the transactions during the 3 months ended March 31, 2020, and classify them into the appropriate section of the statement of cash flows.

Operating activities:
- Cash received from customers: $242,807
- Cash paid to suppliers: $108,600
- Cash paid for income taxes: $13,529
Net cash provided by operating activities: $120,678

Investing activities:
- Purchase of equipment: $81,500
- Sale of marketable investments: $9,200
Net cash used in investing activities: $72,300

Financing activities:
- Issuance of common stock: $30,000
- Issuance of bonds payable: $65,000
- Payment of dividends: $8,000
Net cash provided by financing activities: $87,000

Finally, we can prepare the statement of cash flows for the 3 months ended March 31, 2020, as follows:

Angel Company Statement of Cash Flows for the 3 Months Ended March 31, 2020
Cash flows from operating activities:
Cash received from customers $242,807
Cash paid to suppliers ($108,600)
Cash paid for income taxes ($13,529)
Net cash provided by operating activities $120,678

Cash flows from investing activities:
Purchase of equipment ($81,500)
Sale of marketable investments $9,200
Net cash used in investing activities ($72,300)

Cash flows from financing activities:
Issuance of common stock $30,000
Issuance of bonds payable $65,000
Payment of dividends ($8,000)
Net cash provided by financing activities $87,000

Net increase in cash $54,100

Therefore, the net increase in cash for the 3 months ended March

Answer 2

Statement of Cash Flows (Indirect Method)

For the 3 months ended March 31, 2020

Angel Company

Net income $64,018

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation 1,250 Depreciation

Equity method earnings from Titan investment (5,880) Equity investment earnings

Increase in value of marketable investments (100) Allowance for decrease in value

Deferred taxes payable 336 Deferred taxes

Gain on sale of marketable investments (2,400) Gain on sale of marketable investments

Changes in assets and liabilities:

Accounts receivable (25,000) Accounts receivable

Inventory (17,500) Inventory

Accounts payable 17,197 Accounts payable

Income taxes payable 13,529 Income taxes payable

Other assets - -

Bonds payable 65,000 Bonds payable

Net cash provided by operating activities $44,570

Investing activities:

Proceeds from sale of marketable securities $11,400 Proceeds from sale of securities

Proceeds from condemnation award 29,860 Condemnation award proceeds

Purchase of equipment (81,500) Equipment purchases

Net cash used in investing activities (40,240)

Financing activities:

Issuance of bonds payable $65,000 Bond issuance

Dividends paid (8,000) Dividends paid

Issuance of common stock 30,000 Common stock issuance

Net cash provided by financing activities 87,000

Net increase in cash $91,330

Cash at beginning of period 25,300 Cash, beginning of period

Cash at end of period $116,630 Cash, end of period