Answered: MADISON COMPANY Statement of Cash Flows…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter15: Statement Of Cash Flows

Section: Chapter Questions

Problem 2PB

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Question

Statement of Cash Flows (Indirect Method)

The Madison Company’s income statement and comparative balance sheets as of December 31 of 2019 and 2018 follow:

MADISON COMPANY Income Statement For the Year Ended December 31, 2019
Sales Revenue		$825,000
Cost of Goods Sold	$530,000
Wages and Other Operating Expenses	179,000
Depreciation Expense	29,000
Patent Amortization Expense	6,000
Interest Expense	18,000
Income Tax Expense	25,000
Gain on exchange of land for patent	(37,000)	750,000
Net Income		$75,000

MADISON COMPANY Balance Sheets
	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash	$67,000	$25,000
Accounts Receivable	64,000	49,000
Inventory	85,000	66,000
Land	117,000	160,000
Building and Equipment	441,000	353,000
Accumulated Depreciation	(122,000)	(100,000)
Patent	74,000	-
Total Assets	$726,000	$553,000
Liabilities and Stockholders’ Equity
Accounts Payable	$36,000	$26,000
Interest Payable	13,000	8,000
Income Tax Payable	7,000	12,000
Bonds Payable	190,000	75,000
Common Stock	350,000	350,000
Retained Earnings	130,000	82,000
Total Liabilities and Stockholders’ Equity	$726,000	$553,000

During 2019, $27,000 of cash dividends were declared and paid. A patent valued at $80,000 was obtained in exchange for land. Equipment that originally cost $20,000 and had $7,000 accumulated depreciation was sold for $13,000 cash. Bonds payable were sold for cash and cash was used to pay for structural improvements to the building.

Required
a. Compute the change in cash that occurred during 2019.
b. Prepare a statement of cash flows using the indirect method.

a. Change in Cash during 2019 $Answer

Answer

b. Use a negative sign with cash outflow answers.

MADISON COMPANY Statement of Cash Flows For Year Ended December 31, 2019
Cash Flow from Operating Activities
Net Income
Add (deduct) items to convert net income to cash basis
Depreciation
Patent Amortization
Gain on Exchange of Land for Patent
Accounts Receivable
Inventory
Accounts Payable
Interest Payable
Income Tax Payable
Cash Flow Provided by Operating Activities
Cash Flow from Investing Activities
Sale of Equipment
Improvements to Building
Cash Used by Investing Activities
Cash Flow from Financing Activities
Issuance of Bonds Payable
Payment of Dividends
Cash Provided by Financing Activities
NetChange in Cash
Cash at Beginning of Year
Cash at End of Year

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