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Problem 23-2

The comparative balance sheets for Hinckley Corporation show the following information.

December 31
Cash
Accounts receivable
Inventory
Investments
Buildings
Equipment
Patents

Allowance for doubtful accounts


Accumulated depreciation
equipment
Accumulated depreciationbuilding
Accounts payable
Dividends payable
Notes payable, short-term (nontrade)
Long-term notes payable
Common stock
Retained earnings

2014
$35,560
18,670
15,510
0
0
50,250
5,830
$125,820

2013
$14,980
11,860
9,600
3,530
30,120
22,940
6,490
$99,520

$3,150

$5,040

2,400

4,800

0
5,830
0
2,680
31,190
43,810
36,760
$125,820

6,090
3,530
4,190
3,940
25,650
33,650
12,630
$99,520

Additional data related to 2014 are as follows.


1.

Equipment that had cost $12,190 and was 40%


depreciated at time of disposal was sold for
$3,070.

2.

$10,160 of the long-term note payable was paid


by issuing common stock.

3.

Cash dividends paid were $4,190.

4.

On January 1, 2014, the building was completely


destroyed by a flood. Insurance proceeds on the
building were $32,450 (net of $3,930 taxes).

5.

Investments (available-for-sale) were sold at


$1,580 above their cost. The company has made
similar sales and investments in the past.

6.

Cash was paid for the acquisition of equipment.

7.

A long-term note for $15,700 was issued for the


acquisition of equipment.

8.

Interest of $3,430 and income taxes of $8,030


were paid in cash.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows from Operating Activities

Net Income

24,130

Adjustments to reconcile net income to


Net Cash Provided by Operating Activities

Loss on Sale of Equipment

Gain from Flood Damage

Depreciation Expense

Patent Amortization

Gain on Sale of Investments

Increase in Accounts Receivable (Net)

Increase in Inventory

Increase in Accounts Payable

4,244

-12,350

2,476

660

-1,580

-8,700

-5,910

2,300

-18,860
Net Cash Provided by Operating Activities

5,270

Cash Flows from Investing Activities

Sale of Investments

Sale of Equipment

Purchase of Equipment

5,110

3,070

-23,800

Proceeds from Flood Damage to Building

36,380

Net Cash Provided by Investing Activities

20,760

Cash Flows from Financing Activities

Payment of Dividends

Payment of Short-Term Note Payable

-4,190

-1,260

Net Cash Used by Financing Activities

-5,450

Net Increase in Cash

20,580

Cash, January 1, 2014

14,980

35,560

Cash Paid During the Year for Interest

3,430

Cash Paid During the Year for Income Taxes

8,030

10,160

Cash, December 31, 2014

Supplemental disclosures of cash flow information:

Noncash Investing and Financing Activities

Retired Notes Payable by Issuing Common Stock

15,700

Purchased Equipment by Issuing Notes Payable

25,860

Problem 23-2
Gain from flood damage
= ($32,450 + $3,930) ($30,120 $6,090) = $(12,350)
Increase in accounts receivable (net) = ($18,670 $3,150) ($11,860 $5,040) = $(8,700)
(a) Ending retained earnings
Beginning retained earnings
Net income

$36,760
(12,630)
$24,130

(b) Cost
Accumulated depreciation (40% x $12,190)
Book value
Proceeds from sale
Loss on sale

$12,190
(4,876)
$7,314
(3,070)
$4,244

(c) Accumulated depreciation on equipment sold


Decrease in accumulated depreciation
Depreciation expense

$4,876
(2,400)
$2,476

(d) Beginning equipment balance


Cost of equipment sold
Remaining balance
Purchase of equipment with note
Adjusted balance
Ending equipment balance
Purchased with cash

$22,940
(12,190)
10,750
15,700
26,450
(50,250)
$23,800

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