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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Statement of Cash Flows The following is a list of the items to be included in the preparation of Trone Company’s 2019 statement of cash flows:

  1. a. ordinary gain, $9,200
  2. b. proceeds from issuance of note, $25,000
  3. c. decrease in accounts receivable, $5,000
  4. d. payment for purchase of patent, $19,800
  5. e. increase in inventory, $6,700
  6. f. payment of dividends, $30,000
  7. g. decrease in accounts payable, $4,000
  8. h. proceeds from sale of investments, $8,500
  9. i. amortization of premium on bonds payable, $2,100
  10. j. net income, $49,200
  11. k. common stock exchanged for land, $14,000
  12. l. payment for purchase of equipment, $39,400
  13. m. loss on sale of investments, $4,800
  14. n. decrease in deferred taxes payable, $3,600
  15. o. proceeds from issuance of preferred stock, $52,800
  16. p. payment to retire bonds, $37,800
  17. q. depreciation expense, $10,700
  18. r. ending cash balance, $22,100

Required:

  1. 1. Prepare the statement of cash flows.
  2. 2. Next Level What would have happened if the company had not issued the note during 2019? How did the issuance of the note affect the company’s debt ratio (discussed in Chapter 6) at the end of 2019?

1.

To determine

Prepare the statement of cash flow for the year ended December 31, 2019.

Explanation

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Provide the statement of cash flow for the year ended December 31, 2019:

T Company
Statement of cash flow for the year ended December 31, 2019
ParticularsAmount($)Amount($)
Operating Activities:  
Net income49,200 
Adjustment for non-cash income items:  
Add: Depreciation expenses10,700 
Loss on sale of investment4,800 
Less: Ordinary gain9,200 
Amortization of premium on bonds payable(2,100) 
Decrease in deferred taxes payable(3,600) 
Adjustments for cash flow effects from working capital items:  
Decrease in accounts receivable5,000 
Increase in inventory(6,700) 
Decrease in accounts payable(4,000) 
Net cash provided by operating activities 44,100
Investing Activities:  
Payment for purchase of plant(19,800) 
Payment for purchase of equipment(39,400) 
Proceeds from sale of investment

2.

To determine

Explain the effect on company’s debt ratio by not issuing the note.

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