Q38PGA - Horngren'S Financial And Managerial Accounting

Question

The 2018 comparative balance sheet and income statement of Appleton Group, Inc. follow. Appleton disposed of a plant asset at book value during 2018

Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)11,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.

Step-by-Step Solution

Answer

Net increase/(decrease) in cash is ($1,200).     

Step 1: Statement of cash flows using indirect method

Appleton Group Inc. Spreadsheet for statement of cash flows Year ended December 31, 2018
Panel A-Balance Sheet	Balance 31/12/2017		Transaction Analysis			Balance 31/12/2018
			Debit	Credit
Cash	$15,900					$14,700
Account receivables	$43,900.00			$1,700.00		$42,200
Land	$17,000.00		$25,200.00			$42,200
Plant Assets	$110,750		$11,200			$121,950
Accumulated Depreciation	($16,450)			($3,800)		($20,250)
Merchandise Inventory	$93,900		$3,700			$97,600
Total Assets	$265,000					$298,400
Accounts Payable	$26,900		$1,000			$25,900
Accrued Liabilities	$22,700			$1,800		$24,500
Common stock	$130,700			$8,200		$138,900
Notes Payable (Long-Term)	$65,000		$14,000			$51,000
Retained Earnings	$19,700			$38,400		$58,100
Total Liabilities and Shareholder’s Equity	$265,000					$298,400
Panel B- Statement of Cash Flows
Cash Flows from Operating Activities
Net Income			$66,700
Adjustments to Reconcile Net Income to Net cash provided by Operating Activities:
Depreciation expense			$15,400
Decrease in account receivable			$1,700
Increase in merchandise inventory				$3,700
Increase in account payable				$1,000
Decrease in accrued liabilities			$1,800
Net cash provided/ (used) in Operating activities
Cash Flows from investing Activities:
Purchase of Plant				$22,800
Purchase of land				$25,200
Net cash provided/ (used) in investing activities
Cash Flows from Financing Activities:
Issuance of common stock			$8,200
Payment of notes payable				$14,000
Dividend Paid				$28,300
Net cash provided/ (used) in financing activities
Net increase/ (Decrease) in cash			$1,200
Total			$95,000	$95,000

Step 2: Calculation of cash paid for the purchase of plant

$\begin{array}{c}\mathrm{Cash} \mathrm{paid}=\mathrm{Closing} \mathrm{balance}+\mathrm{cost} \mathrm{of} \mathrm{disposed} \mathrm{asset}–\mathrm{opening} \mathrm{balance}\\ =\mathrm{\$}121,950+\mathrm{\$}11,600-\mathrm{\$}110,750\\ =\mathrm{\$}22,800\end{array}$