Prepare a statement of cash flows for Sanibel Corp. for the year ended December 31, 2017,

Prepare a statement of cash flows for Sanibel Corp. for the year ended December 31, 2017,

B PROBLEMS

P23-1B (L02,4) (SCF—Indirect Method) The following are Sanibel Corp.’s comparative balance sheet accounts at Decem- ber 31, 2017 and 2016, with a column showing the increase (decrease) from 2016 to 2017.

Additional information:

1. On December 31, 2016, Sanibel acquired 25% of Island Co.’s common stock for $420,000. On that date, the carrying value of Island’s assets and liabilities, which approximated their fair values, was $1,680,000. Island reported income of $220,000 for the year ended December 31, 2017. No dividend was paid on Island’s common stock during the year.
2. During 2016, Sanibel loaned $500,000 to POI Co., an unrelated company. POI made the first semi-annual principal repay- ment of $50,000, plus interest at 10%, on December 31, 2016. POI is current on the loan as of December 31, 2017.
3. On January 2, 2017, Sanibel sold equipment costing $100,000, with a carrying amount of $31,000, for $20,000 cash. 4. On December 31, 2017, Sanibel entered into a capital lease for a new factory. The present value of the annual rental pay-

ments is $850,000, which equals the fair value of the building. Sanibel made the first rental payment of $120,000 when due on January 2, 2018.

1. Net income for 2017 was $285,000. 6. Sanibel declared and paid cash dividends for 2017 and 2016 as follows.

Instructions

Prepare a statement of cash flows for Sanibel Corp. for the year ended December 31, 2017, using the indirect method. (AICPA adapted)

1

COMPARATIVE BALANCE SHEETS

Increase 2017 2016 (Decrease)

Cash $ 650,000 $ 510,000 $ 140,000 Accounts receivable 1,260,000 1,090,000 170,000 Inventory 1,538,000 1,370,000 168,000 Property, plant, and equipment 2,680,000 1,763,000 917,000 Accumulated depreciation (850,000) (760,000) (90,000) Investment in Island Co. 475,000 420,000 55,000 Loan receivable 350,000 450,000 (100,000)

Total assets $6,103,000 $4,843,000 $1,260,000

Accounts payable $1,080,000 $ 910,000 $ 170,000 Income taxes payable 90,000 75,000 15,000 Dividends payable 100,000 60,000 40,000 Capital lease obligation 850,000 0 850,000 Common stock, $1 par 400,000 400,000 0 Paid-in capital in excess of 2,100,000 2,100,000 0 par—common stock Retained earnings 1,483,000 1,298,000 185,000

Total liabilities and stockholders’ equity $6,103,000 $4,843,000 $1,260,000

2017 2016

Declared December 15, 2017 December 15, 2016 Paid February 28, 2018 February 28, 2017 Amount $100,000 $60,000

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2 Chapter 23 Statement of Cash Flows

P23-2B (L02,4) (SCF—Indirect Method) The comparative balance sheets for Queen Corporation show the following information.

Additional data related to 2017 are as follows.

1. Equipment that had cost $20,000 and was 60% depreciated at time of disposal was sold for $2,000. 2. $18,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $12,000. 4. On January 1, 2017, the building was completely destroyed by a hurricane. Insurance proceeds on the building were

$245,000 (net of $22,000 taxes). 5. Investments (available-for-sale) were sold at $2,800 below their cost. The company has made similar sales and invest-

ments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $20,000 was issued for the acquisition of equipment. 8. Interest of $1,000 and income taxes of $23,600 were paid in cash.

Instructions

Prepare a statement of cash flows using the indirect method. Hurricane damage is unusual in that part of the country.

P23-3B (L02,3) (SCF—Direct Method) Seahorse Inns Company has not yet prepared a formal statement of cash flows for the 2017 fiscal year. Comparative balance sheets as of December 31, 2016 and 2017, and a statement of income and retained earn- ings for the year ended December 31, 2017, are presented below.

SEAHORSE INNS COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS

FOR THE YEAR ENDED DECEMBER 31, 2017 ($000 OMITTED)

Sales $15,200 Expenses

Cost of goods sold $9,200 Salaries and benefi ts 2,250 Heat, light, and power 150

Depreciation 110 Property taxes 24

Patent amortization 60 Miscellaneous expenses 20

Interest 45 11,859

Income before income taxes 3,341

December 31

2017 2016

Cash $ 55,800 $ 19,000 Accounts receivable 56,000 51,000 Inventory 81,600 84,000 Buildings 0 180,000 Equipment 195,000 120,000 Investments 0 42,000 Patents 25,000 30,000

Total assets $413,400 $526,000

Allowance for doubtful accounts $ 5,000 $ 4,500 Accumulated depreciation-buildings 46,000 Accumulated depreciation-equipment 45,000 20,000 Accounts payable 76,000 74,000 Dividends payable 6,000 12,000 Notes payable, short-term 10,000 6,000 Long-term notes payable 50,000 260,000 Common stock 68,000 50,000 Retained earnings 153,400 53,500

Total liabilities and stockholders’ equity $413,400 $526,000

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B Problems 3

SEAHORSE INNS COMPANY COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31 ($000 OMITTED)

Assets 2017 2016 Current assets

Cash $ 129 $ 210 Investments (available-for-sale) 85 50

Accounts receivable, net 2,800 3,100 Inventory 2,860 2,600

Total current assets 5,874 5,960 Long-term assets Land 540 360

Buildings and equipment 3,200 2,450 Accumulated depreciation (1,070) (960) Patents, net 140 200

Total long-term assets 2,810 2,050

Total assets $8,684 $8,010

Liabilities and Stockholders’ Equity Current liabilities Accounts payable $1,239 $2,740

Income taxes payable 240 460 Notes payable 300 0

Total current liabilities 1,779 3,200 Long-term notes payable—due 2016 200 510

Total liabilities 1,979 3,710

Stockholders’ equity Common stock 1,900 500 Retained earnings 4,805 3,800

Total stockholders’ equity 6,705 4,300

Total liabilities and stockholders’ equity $8,684 $8,010

Income taxes 1,336

Net income 2,005 Retained earnings—Jan. 1, 2017 3,800

5,805 Stock dividend declared and issued 1,000

Retained earnings—Dec. 31, 2017 $ 4,805

Instructions

Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.

(CMA adapted)

P23-4B (L02,3,4) (SCF—Direct Method) Wizard Company had available at the end of 2017 the information shown below and on the next page.

WIZARD COMPANY COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31, 2017 AND 2016

2017 2016

$ 2,000 $ 12,000 31,500 40,000

95,600 90,000 15,600 26,000

200,000 260,000 650,000 650,000

Cash Short-term investments Accounts receivable Inventory Prepaid expenses Land Buildings Accounts receivable

60,000 50,800

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4 Chapter 23 Statement of Cash Flows

Instructions

Prepare a statement of cash flows for Wizard Company using the direct method accompanied by a reconciliation schedule. As- sume the short-term investments are classified as available-for-sale.

P23-5B (L02,4) (SCF—Indirect Method) You have completed the field work in connection with your audit of Clark Corpo- ration for the year ended December 31, 2017. The balance sheet accounts at the beginning and end of the year are shown on the next page.

WIZARD COMPANY COMPARATIVE BALANCE SHEETS

AS OF DECEMBER 31, 2017 AND 2016 (CONTINUED)

2017 2016

Accumulated depreciation-buildings (75,000) (57,000) Equipment 346,000 150,000 Accumulated depreciation-equipment (41,000) 0 Patents 68,000 72,000

Total assets $1,370,700 $1,293,800

Accounts payable 81,000 86,900 Income taxes payable 26,800 21,000 Salaries and wages payable –0– 8,000 Notes payable, short-term 25,000 25,000 Long-term notes payable 50,000 75,000 Bonds payable 600,000 600,000 Discount on bonds payable (36,015) (40,865) Common stock 110,000 100,000 Paid-in capital in excess of 248,600 216,800 par-common stock Retained earnings 265,315 201,965

Total liabilities and stockholders’ equity $1,370,700 $1,293,800

WIZARD COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue $1,560,000 Cost of goods sold 976,000

Gross margin 584,000 Operating expenses Selling expenses $160,800 Administrative expenses 116,100 Depreciation/Amortization expense 63,000 Total operating expenses 339,900

Income from operations 244,100 Other revenues/expenses Gain on sale of land 21,000 Loss on sale of short-term investment (8,000) Dividend revenue 4,100 Interest expense (95,350) (78,250)

Income before taxes 165,850 Income tax expense 62,500 Net income 103,350 Dividends to common stockholders (40,000)

To retained earnings $ 63,350

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B Problems 5

December 31, December 31, Increase 2017 2016 (Decerase)

Cash $ 99,435 $ 110,700 $ (11,265) Accounts receivable 424,600 380,900 43,700 Inventory 635,740 576,475 59,265 Prepaid expenses 20,000 12,000 8,000 Investment in subsidiary 200,000 0 200,000 Cash surrender value of life isnurance 16,460 14,850 1,610 Land 100,000 100,000 0 Buidings 525,000 400,000 125,000 Equipment 381,000 290,000 91,000 Patents 86,000 70,000 16,000 Trademarks 25,000 35,000 (10,000) Bond discount and issue costs 1,165 6,075 (4,910)

Total debits $2,514,400 $1,996,000 $518,400

Accounts payable $ 534,000 $ 508,000 $ 26,000 Income taxes payable 68,000 34,500 33,500 Salaries and wages payable 73,500 12,900 60,600 Allowance for doubtful accounts 25,000 23,000 2,000 Accumulated depreciation-buildings 248,000 230,000 18,000 Accumulated depreciation-equipment 160,000 103,000 57,000 Long-term notes payable 75,000 75,000 0 Bonds payable 400,000 300,000 100,000 Premium on bonds payable 7,762 0 7,762 Common stock 150,000 125,000 25,000 Paid-in capital in excess of par-common stock 568,000 418,000 150,000 Retained earnings 205,138 166,600 38,538

Total credits $2,514,400 $1,996,000 $518,400

Your working papers from the audit contain the following information:

1. On November 1, 2017, 25,000 shares of $1 par stock were sold for $175,000. 2. A patent was purchased for $31,000. 3. During the year, equipment that had a cost basis of $26,400 and on which there was accumulated depreciation of $5,800

was sold for $15,000. No other plant assets were sold during the year. 4. The 10%, $300,000 40-year bonds were dated and issued on January 2, 2004. Interest was payable on June 30 and Decem-

ber 31. They were sold originally at 97. These bonds were retired at 101 plus accrued interest on May 31, 2017. 5. The 6%, $400,000 20-year bonds were dated January 1, 2017, and were sold on May 31 at 102 plus accrued interest. Inter-

est is payable semiannually on June 30 and December 31. Expense of issuance was $1,200. 6. Clark Corporation acquired 60% control in Pediatric Company on January 2, 2017, for $146,000. The income statement of

Pediatric Company for 2017 shows a net income of $90,000. 7. Extraordinary repairs to buildings of $12,600 were charged to Accumulated Depreciation—Buildings. 8. Interest paid in 2017 was $31,000 and income taxes paid were $38,000. 9. Net income for the year totalled $76,538.

Instructions

From the information given, prepare a statement of cash flows using the indirect method. A worksheet is not necessary, but the principal computations should be supported by schedules or general ledger accounts. The company uses straight-line amortiza- tion for bond interest.

P23-6B (L02,3,4) (SCF—Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Easton Inc. are presented below and on the next page.

EASTON INC. COMPARATIVE BALANCE SHEET ACCOUNTS

AS OF DECEMBER 31, 2017 AND 2016

December 31, December 31, 2017 2016

Cash $ 40,500 $ 33,600 Accounts receivable 120,500 96,000 Inventory 81,000 85,600

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6 Chapter 23 Statement of Cash Flows

Additional data (ignoring taxes):

1. Net income for the year was $71,400. 2. Cash dividends declared and paid during the year were $10,000. 3. A 10% stock dividend was declared during the year. $37,500 of retained earnings was capitalized. 4. Investments that cost $24,000 were sold during the year for $29,500. 5. Equipment that cost $5,400, on which $3,600 of depreciation had accumulated, was sold for $2,200.

Easton’s 2017 income statement follows (ignoring taxes).

Instructions

(a) Compute net cash flow from operating activities using the direct method. (b) Prepare a statement of cash flows using the indirect method.

P23-7B (L02,3,4) (SCF—Direct and Indirect Methods from Comparative Financial Statements) Cooper Company, a sports retailer operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Cooper as of October 31, 2017, are below. The company is preparing its statement of cash flows.

EASTON INC. COMPARATIVE BALANCE SHEET ACCOUNTS

AS OF DECEMBER 31, 2017 AND 2016 (CONTINUED)

December 31, December 31, 2017 2016

Investments (available-for-sale) 41,000 65,000 Land 25,000 25,000 Buidings 98,000 76,000 Equipment 60,800 41,000

Total debits $466,800 $422,200

Allowance for doubtful accounts $ 3,600 $ 3,000 Accumulated depreciation-buildings 26,800 23,200 Accumulated depreciation-equipment 19,300 12,700 Accounts payable 63,000 70,000 Salaries and wages payable 6,000 11,600 Long-term notes payable 45,000 60,000 Common stock 11,000 10,000 Paid-in capital in excess of par-common stock 201,000 164,500 Retained earnings 91,100 67,200

Total credits $466,800 $422,200

Sales $855,600 Less: cost of goods sold 538,900

Gross margin 316,700 Less: Operating expenses (includes $13,800 depreciation and $4,100 bad debts) 251,200

Income from operations 65,500 Other: Gain on sale of investments $5,500 Gain on sale of machinery 400 5,900

Net income $ 71,400

COOPER COMPANY COMPARATIVE BALANCE SHEET

AS OF OCTOBER 31

2017 2016 Current assets Cash $ 21,500 $ 12,000 Accounts receivable 62,000 50,000 Inventory 128,600 109,000 Prepaid expenses 8,000 13,000

Total current assets 220,100 184,000

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B Problems 7

Plant assets Plant assets 575,000 450,000 Accumulated depreciation-plant assets (115,000) (90,000)

Net plant assets 460,000 360,000

Total assets $680,100 $544,000

Current liabilities Accounts payable $ 90,000 $ 86,000 Salaries and wages payable 23,600 28,400 Interest payable 11,000 9,200

Total current liabiltities 124,600 123,600

Long-term notes payable 125,000 80,000

Total liabilities 249,600 203,600

Stockholders’ equity Common stock 105,000 100,000 Paid-i