The net changes in the balance sheet accounts of Keating Corporation for the year 2011 are shown below. Account Debit Credit Cash$ 82,000 Short-term investments$121,000 Accounts receivable83,200 Allowance for doubtful accounts13,300 Inventory74,200 Prepaid expenses17,800 Investment in subsidiary (equity method)20,000 Plant and equipment210,000 Accumulated depreciation130,000 Accounts payable80,700 Accrued liabilities21,500 Deferred tax liability15,500 8% serial bonds80,000Common stock, $10 par90,000 Additional paid-in capital150,000 Retained earnings—Appropriation for bonded indebtedness60,000 Retained earnings—Unappropriated 38,000 $643,600$643,600 An analysis of the Retained Earnings—Unappropriated account follows: Retained earnings unappropriated, December 31, 2010$1,300,000 Add:Net income327,000 Transfer from appropriation for bonded indebtedness 60,000 Total$1,687,000 Deduct:Cash dividends$185,000 Stock dividend 240,000 425,000 Retained earnings unappropriated, December 31, 2011$1,262,000 1.
On January 2, 2011 short-term investments (classified as available-for-sale) costing $121,000 were sold for $155,000. 2. The company paid a cash dividend on February 1, 2011. 3. Accounts receivable of $16,200 and $19,400 were considered uncollectible and written off in 2011 and 2010, respectively.
4. Major repairs of $33,000 to the equipment were debited to the Accumulated Depreciation account during the year. No assets were retired during 2011. 5. The wholly owned subsidiary reported a net loss for the year of $20,000.
The loss was recorded by the parent. . At January 1, 2011, the cash balance was $166,000.
Instructions Prepare a statement of cash flows (indirect method) for the year ended December 31, 2011. Keating Corporation has no securities which are classified as cash equivalents. Solution 23-128 Keating Corporation Statement of Cash Flows For the Year Ended December 31, 2011 Increase (Decrease) in Cash Cash flows from operating activities Net income$327,000 Adjustments to reconcile net income to net cash provided by operating activities: Equity in subsidiary loss$ 20,000 Depreciation expense163,000Gain on sale of short-term investments(34,000) Decrease in deferred tax liability(15,500) Increase in accounts receivable (net)(69,900) Increase in inventory(74,200) Decrease in prepaid expenses17,800 Decrease in accounts payable(80,700) Increase in accrued liabilities 21,500 (52,000) Net cash provided by operating activities275,000 Cash flows from investing activities Sale of short-term investments155,000 Purchase of plant and equipment(210,000) Major repairs to equipment (33,000) Net cash provided by investing activities(88,000) Cash flows from financing activitiesPayment of cash dividend(185,000) Sale of serial bonds 80,000 Net cash used by financing activities (105,000) Net increase in cash82,000 Cash, January 1, 2011 166,000 Cash, December 31, 2011$248,000 Pr. 23-129—Statement of cash flows (direct and indirect methods). Hartman, Inc. has prepared the following comparative balance sheets for 2010 and 2011: 2011 2010 Cash$ 297,000$ 153,000 Receivables159,000117,000 Inventory150,000180,000 Prepaid expenses18,00027,000 Plant assets1,260,0001,050,000 Accumulated depreciation(450,000)(375,000) Patent 153,000 174,000 1,587,000$1,326,000 Accounts payable$ 153,000$ 168,000 Accrued liabilities60,00042,000 Mortgage payable—450,000 Preferred stock525,000— Additional paid-in capital—preferred120,000— Common stock600,000600,000 Retained earnings 129,000 66,000 $1,587,000$1,326,000 1. The Accumulated Depreciation account has been credited only for the depreciation expense for the period. 2.
The Retained Earnings account has been charged for dividends of $138,000 and credited for the net income for the year. The income statement for 2011 is as follows:Sales$1,980,000 Cost of sales 1,089,000 Gross profit891,000 Operating expenses 690,000 Net income$ 201,000 Instructions (a)From the information above, prepare a statement of cash flows (indirect method) for Hartman, Inc. for the year ended December 31, 2011. (b)From the information above, prepare a schedule of cash provided by operating activities using the direct method. Solution 23-129 (a)Hartman, Inc. Statement of Cash Flows For the Year Ended December 31, 2011 Increase (Decrease) in Cash Cash flows from operating activities Net income$201,000Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense$ 75,000 Patent amortization21,000 Increase in receivables(42,000) Decrease in inventory30,000 Decrease in prepaid expenses9,000 Decrease in accounts payable(15,000) Increase in accrued liabilities 18,000 96,000 Net cash provided by operating activities297,000 Cash used in investing activities Purchase of plant assets(210,000) Cash flows from financing activities Payment of cash dividend(138,000) Retirement of mortgage payable(450,000) Sale of preferred stock 645,000Net cash provided by financing activities 57,000 Net increase in cash144,000 Cash, January 1, 2011 153,000 Cash, December 31, 2011$297,000 (b)Hartman, Inc.
Schedule of Cash Provided by Operating Activities For Year Ended December 31, 2011 Cash flows from operating activities Cash received from customers (1)$1,938,000 Cash paid to suppliers (2)$1,074,000 Operating expenses paid (3) 567,000 1,641,000 Net cash provided by operating activities$ 297,000 (1)$1,980,000 – $42,000 (2)$1,089,000 – $30,000 + $15,000 (3)$690,000 – $75,000 – $21,000 – $9,000 – $18,000