Example 3:
Shiner Corporation continues to do well and has added a line of products to its
operations. Thus, a new asset, and inventories appear on the balance sheet this period.
The following transactions are noted for the year. Operating expenses on the income
statement include depreciation expense of $33,000 and amortization of prepaid expenses of
$2,000. Shiner sold the land at its book value and $55,000 in cash dividends were paid.
Interest expense of $12,000 was paid in cash and additional equipment was purchased for
$166,000. Equipment that cost $41,000, having a book value of $36,000, was sold for
$34,000. The bonds were redeemed at their book value for cash and common stock ($1) was
issued.
| Comparative Balance Sheet | |||
| Shiner Corporation |
|||
Assets |
Dec 31, 1996 | Dec 31, 1995 | |
| Cash | $54,000 | $37,000 | |
| Accounts Receivable | $68,000 | $26,000 | |
| Inventories | $54,000 | $0 | |
| Prepaid Expenses | $4,000 | $6,000 | |
| Land | $45,000 | $70,000 | |
| Building | $200,000 | ||
| Accumulated Depreciation | $21,000 | $179,000 | *$189,000 |
| Equipment | $193,000 | ||
| Accumulated Depreciation | $28,000 | $165,000 | *$58,000 |
| Total Assets | $569,000 | $386,000 | |
| Liabilities and Stockholder Equity | |||
| Accounts Payable | $33,000 | $40,000 | |
| Bonds Payable | $110,000 | $150,000 | |
| Common Stock | $220,000 | $60,000 | |
| Retained Earnings | $206,000 | $136,000 | |
| Total Liabilities and Stockholder Equity | $569,000 |
$386,000 |
|
| *Net | |||
| Income Statement | ||
| Shiner Corporation |
||
| Revenue | $890,000 | |
| Cost of goods sold | $465,000 | |
| Operating Expenses | $221,000 | |
| Interest Expense | $12,000 | |
| Loss on Equipment sale | $2,000 | $700,000 |
| Income before Income Taxes | $190,000 | |
| Income Tax Expense | $65,000 | |
| Net Income | $125,000 | |
| Step 1: | Change in Cash: Dec 31, 96 Balance minus Dec 31, 95 balance ($54,000-$37,000)=$17,000 |
| Step 2: Net Cash flow from Operating Activities | |||
| Direct Method: | |||
| Cash collected from Revenues | $848,000 | ||
| Cash payments for Expenses | $712,000 | ||
| Interest Expense | $12,000 | ||
| Income before Income Taxes | $136,000 | ||
| Income Taxes | $65,000 | ||
| Net cash flow from Operating Activities | $59,000 | ||
|
|||
| Indirect Method: | |||
| Net Income | $125,000 | ||
| Adjustments to reconcile net income to net cash | |||
| Accts Receivable decrease | ($42,000) | ||
| Prepaid Expense decrease | $2,000 | ||
| Inventory increase | ($54,000) | ||
| Accts Payable decrease | ($7,000) | ||
| Loss on Equipment Sale | $2,000 | ||
| Depreciation | $33,000 | ($66,000) | |
| Net cash flow from Operating Activities | $59,000 | ||
| Step 3: | ||
| Investing Activities | ||
| Land Sale | $25,000 | |
| Equipment Sale | $34,000 | |
| Equipment Purchase | ($166,000) | |
| Financing Activities | ||
| Issuance of Common Stock | $160,000 | |
| Redemption of Bonds Payable | ($40,000) | |
| Dividend payment to shareholders | ($55,000) | |
| Statement of Cash Flows | |||
| Cash Flow from Operating Activities | |||
| Net Income | $125,000 | ||
| Adjustments to reconcile net income to net cash | |||
| Accts Receivable decrease | ($42,000) | ||
| Prepaid Expense decrease | $2,000 | ||
| Inventory increase | ($54,000) | ||
| Accts Payable decrease | ($7,000) | ||
| Loss on Equipment Sale | $2,000 | ||
| Depreciation | $33,000 | ($66,000) |
|
| Net cash provided from Operating Activities | $59,000 |
||
| Investing Activities | |||
| Land Sale | $25,000 | ||
| Equipment Sale | $34,000 | ||
| Equipment Purchase | ($166,000) | ($107,000) | |
| Financing Activities | |||
| Issuance of Common Stock | $160,000 | ||
| Redemption of Bonds Payable | ($40,000) | ||
| Dividend payment to shareholders | ($55,000) | $65,000 | |
| Net Decrease in Cash | $17,000 | ||
| Cash Jan 1, 1996 | $37,000 | ||
| Cash Dec 31, 1996 | $54,000 | ||