Chapter 23: Q21E (page 1382)

Question: (Worksheet Preparation) Below is the comparative balance sheet for Stevie Wonder Corporation.
Particulars
Dec 31, 2017
Dec 31, 2016
Cash
$16,500
$21,000
Short-term investments
25,000
19,000
Accounts receivables
43,000
45,000
Allowance for doubtful accounts
(1,800)
(2,000)
Prepaid expenses
4,200
2,500
Inventory
81,500
65,000
Land
50,000
50,000
Buildings
125,000
73,500
Accumulated depreciation – Buildings
(30,000)
(23,000)
Equipment
53,000
46,000
Accumulated depreciation – equipment
(19,000)
(15,500)
Delivery equipment
39,000
39,000
Accumulated depreciation – delivery equipment
(22,000)
(20,500)
Patents
15,000
0
$379,400
$300,000
Accounts payable
$26,000
$16,000
Short-term note payable
4,000
6,000
Accrued payable
3,000
4,600
Mortgage payable
73,000
53,400
Bond payable
50,000
62,500
Common stock
140,000
102,000
Paid-in-capital in excess of par
10,000
4,000
Retained earnings
73,400
51,500
$379,400
$300,000
Dividends in the amount of $15,000 were declared and paid in 2017.
Instructions
From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale and no unrealized gains or losses have occurred on these securities

Expert verified

Answer

Net changes in the cash totals($4,500).

Step by step solution

Bonds payable can be defined as the liability reported by the business entity for securities issued to the investors. The investors

Step 2: Worksheet for statement of cash flow

Particulars	Dec 31, 2016	Reconciling items		Dec 31, 2017
Particulars	Dec 31, 2016	Debit	Credit
Cash	$21,000		$4,500	$16,500
Short-term investments	19,000	6,000		25,000
Accounts receivables	45,000		2,000	43,000
Prepaid expenses	2,500	1,700		4,200
Inventory	65,000	16,500		81,500
Land	50,000			50,000
Buildings	73,500	51,500		125,000
Equipment	46,000	7,000		53,000
Delivery equipment	39,000			39,000
Patents	0	15,000		15,000
Total debit	$			$

Accounts payable	$16,000		10,000	$26,000
Short-term note payable	6,000	2,000		4,000
Accrued payable	4,600	1,600		3,000
Mortgage payable	53,400		19,600	73,000
Bond payable	62,500	12,500		50,000
Common stock	102,000		38,000	140,000
Paid-in-capital in excess of par	4,000		6,000	10,000
Retained earnings	51,500	15,000	36,900	73,400
Allowance for doubtful accounts	2,000	200		1,800
Accumulated depreciation – Buildings	23,000		7,000	30,000
Accumulated depreciation – equipment	15,500		3,500	19,000
Accumulated depreciation – delivery equipment	20,500		1,500	22,000

Particular	Amount $	Amount $
Cash flow from operations
Net income $($ 73, 400 - $ 51, 500 + $ 15, 000)$		$36,900
Add/Less: Adjustments to the net income
Depreciation expenses for equipment $($ 19, 000 - $ 15, 500)$	7,000
Depreciation expenses for building $($ 22, 000 - $ 20, 500)$	3,500
Depreciation expenses for delivery equipment	1,500	12,000
Add/Less: Changes in the current assets and current liabilities
Increase in short-term investment	(6,000)
Decrease in accounts receivables (net)	1,800
Increase in prepaid expenses	(1,700)
Increase in inventory	(16,500)
Increase in account payable	10,000
Decrease in short-term note payable	(2,000)
Decrease in accrued payable	(1,600)	(16,000)
Cash flow from operation		$32,900

Cash flow from investing activities
Acquisition of building	(51,500)
Acquisition of equipment	(7,000)
Purchase of patent	(15,000)
Cash flow used investing activities		($73,500)

Cash flow from financing activities
Mortgage payable	19,600
Redemption of bonds	(12,500)
Issue of common stock	38,000
Paid in capital in excess of par	6,000
Dividend payment	(15,000)
Cash flow from financing activities		$36,100
Net change in cash balance		($4,500)
Add: beginning cash balance		21,000
Ending cash balance		$16,500

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MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016
	2017	2016
Cash	\(10,000	\)4,000
Accounts receivable	20,500	12,950
Short-term investments	22,000	30,000
Inventory	42,000	35,000
Prepaid rent	3,000	12,000
Prepaid insurance	2,100	900
Supplies	1,000	750
Land	125,000	175,000
Building	350,000	350,000
Accumulated depreciation – building	(105,000)	(87,500)
Equipment	525,000	400,000
Accumulated depreciation – equipment	(130,000)	(112,000)
Patents	45,000	50,000
Total assets	\(910,600	\)871,100

Account payable	\(22,000	\)32,000
Income tax payable	5,000	4,000
Salaries and wages payable	5,000	3,000
Short-term note payable	10,000	10,000
Long-term note payable	60,000	70,000
Bond payable	400,000	400,000
Premium on bond payable	20,303	25,853
Common stock	240,000	220,000
Paid-in-capital in excess of par – common stock	25,000	17,500
Retained earnings	123,297	88,747
Total liabilities and stockholders equity	\(910,600	\)871,100

MICHAELS COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue		\(1,160,000
Cost of goods sold		748,000
Gross margin		412,000
Operating expenses
Selling expenses	\)79,200
Administrative expenses	156,700
Depreciation/Amortization expenses	40,500
Total operating expenses		276,400
Income from operations		135,600
Other revenue/expenses
Gain on sale of land	8,000
Gain on sale of short-term investment	4,000
Dividend revenue	2,400
Interest expenses	(51,750)	(37,350)
Income before tax		98,250
Income tax expenses		39,400
Net income		58,850
Dividend to common stockholders		(24,300)
To Retained earnings		$34,550