Q41PGB
Question
The 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:
Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,240. Plant asset was acquired for cash.
Requirements
1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Step-by-Step Solution
Verified- Net cash from operating activities is $136,300.
- Value of new investment during the year is $20700
SWEET VALLEY, INC. Statement of Cash Flows For the year ended December 31, 2018
| |
Cash Flows From Operating Activities: |
|
Net Income | $107,500 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
Depreciation expense | $14,500 |
Increase in account receivables | ($1,300) |
Decrease in merchandise inventory | $12,000 |
Increase in account payable | $5,500 |
Decrease in accrued liabilities | ($1,900) |
Net cash provided/ (used) in operating activities | $136,300 |
Cash Flows From Investing Activities: |
|
Purchase of plant | ($20,700) |
Net cash provided/ (used) in investing activities | ($20,700) |
Cash Flows From Financing Activities: |
|
Issuance of common stock | $23,400 |
Payment of notes payable ($105,000-$78,000) | ($27,000) |
Dividend paid | ($80,200) |
Net cash provided/ (used) in financing activities | ($83,800) |
Net increase/(Decrease) in cash | $10,900 |
Cash Balance, December 31, 2017 | $15,400 |
Cash Balance, December 31, 2018 | $26,300 |
SWEET VALLEY, INC. Statement of Cash Flows (Partial) For the year ended December 31, 2018
| |
Non-cash Investing and financing activities |
|
Acquisition of land by issuing long-term notes payable | $20,900 |
Total Non-cash Investing and financing activities | $20,900 |
Step 3: Evaluation of the investment
The value of the purchase of the plant is determined by taking the opening balance i.e., $108,330 and subtracting the cost of the sold plant i.e., $13240 then comparing it to the closing balance of the plant i.e., $115790. Therefore, the difference now will be the purchase of the plant i.e., $20700.