The accounts below appear in the ledger of Anita Baker Company.

Retained Earnings Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 42,000

Aug. 15 Dividends (cash) \)15,000 27,000

Dec. 31 Net Income for 2017 \(40,000 67,000

Equipment Dr. Cr. Bal.

Jan. 1, 2017 Debit Balance \)140,000

Aug. 3 Purchase of Equipment \(62,000 202,000

Sept. 10 Cost of Equipment Constructed 48,000 250,000

Nov. 15 Equipment Sold \)56,000 194,000

Accumulated Depreciation— Equipment Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 84,000

Apr. 8 Major Repairs \)21,000 63,000

Nov. 15 Accum. Depreciation on Equipment Sold 25,200 37,800

Dec. 31 Depreciation for 2017 \(16,800 54,600

Instructions

From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was \)5,800.

Step by step solution

01

Computation of sale of equipment

$\begin{array}{c}\mathbf{Sale}\mathbf{}\mathbf{of}\mathbf{}\mathbf{equipment}\mathbf{=}[(\mathbf{Equipment}\mathbf{}\mathbf{sold}\mathbf{-}\mathbf{Accumulated}\mathbf{}\mathbf{depreciation}\mathbf{}\mathbf{on}\mathbf{}\mathbf{plants}\mathbf{}\mathbf{old})\mathbf{-}\mathbf{loss}\mathbf{}\mathbf{on}\mathbf{}\mathbf{sale}\mathbf{}\mathbf{of}\mathbf{}\mathbf{equipment}]\\ \mathbf{=}[(\mathbf{56}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{25}\mathbf{,}\mathbf{200})\mathbf{-}\mathbf{5}\mathbf{,}\mathbf{800}]\\ =\$25,000\end{array}$

02

Preparation statement of cash flows

Anita Baker Company
Statement of cash flows
For the year ended December 31, 2017
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities
Net Income		40,000
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation expense	16,800
Loss on sale of investments	5,800	22,600
Net cash provided by operating activities		62,600
Cash flow from investing activities
Purchase of equipment	-62,000
Sale of equipment	25,000
Extraordinary repairs on equipment	-21,000
Cost of equipment constructed	-48,000
Net cash provided by investing activities		-106,000
Cash flow from financing activities
Dividend payment	-15,000
Net cash used by financing activities		-15,000
Net Increase in cash		-$58,400
Cash, January 1, 2017		-
Cash, December 31, 2017		-

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