Question

The following occurred during 20X1. A $35,000 note payable was issued. Land was purchased for $50,000. Bonds payable (maturing in 20X5) in the amount of $30,000 were retired by paying $30,000 cash. Capital stock in the amount of $40,000 was issued at par value. The company sold surplus equipment for $14,000. The equipment had a book value of $14,000 at the time of the sale. Net income was $35,500. Cash dividends of $5,000 were paid to the stockholders. 100 shares of stock of another company (considered short-term investments) were purchased for $8,300. $75,000 in bonds were issued. The next day, the proceeds were used to purchase a new building. $12,000 of depreciation was recorded on the plant and equipment. At December 31, 20X1, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes payable were unchanged from 20X0. Required: Prepare a statement of cash flows for 20X1. Prepare the December 31, 20X1, balance sheet for Kay Wing, Inc.

Answer 1

Answer and Explanation:

The preparation of the statement of cash flow is shown below:-

Kay wing, Inc.

Statement of Cash Flows

For the Year Ended December 31,2021

Particulars Amount

Cash flows from operating activities:

Net income $35,500

Adjustment

Depreciation expense $12,000

Changes in current asset and liabilities

Increase in accounts receivable -$4,500

Increase in Inventory -$3,000

Decrease in accounts payable -$7,500 -$3,000

Net Cash Provided by Operating activities $32,500

Cash flows from Investing activities

Purchase of land -$50,000

Sale of Equipment $14000

Purchase of short-term

investment -$8,300

Net Cash Used by Investing

Activities -$44,300

Cash flows from Financing activities

Common Stock Issued $40,000

Bond payable -$30,000

Dividend paid -$5,000

Notes payable $35,000

Net Cash Provided by Financing activities $40,000

Net increase (decrease) in cash $28,200

Cash Balance at December 31, 2020 $65,000

Cash Balance at December 31, 2021 $93,200

2. The Preparation of balance sheet is shown below:-

Kay wing, Inc.

Balance Sheet

For the Year Ended December 31,20X1

Asset

Cash $93,200

Accounts receivable $41,500

Inventory $73,000

Long-term investments $20,000

Land $89,000

Plant and equipment $158,000

Short-term investment $8,300

Total assets $483,000

Liabilities

Accounts payable $25,500

Taxes payable $4,000

Note payable $35,000

Bonds payable $125,000

Stockholders equity

Capital stock $130,000

Retained earnings $163,500

Total liabilities and stockholders

equity $483,000

Note:

Plant and equipment - Sale of equipment - Depreciation + Purchase of building

Plant and equipment = $109,000 - $14,000 - $12,000 + $75,000

= $158,000

Retained earnings = Opening Retained earning + net income - dividend

= $133,000 + $35,500 - $5,000

= $163,500