Acc 201 Problem 23 322r52

Problem 23-2 The comparative balance sheets for Hinckley Corporation show the following information.

December 31 Cash s receivable Inventory Investments Buildings Equipment Patents

Allowance for doubtful s Accumulated depreciation— equipment Accumulated depreciation—building s 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 s Receivable (Net)

Increase in Inventory

Increase in s 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 s 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