The following occurred during 20X1. A $35,000 note payable was issued. Land was purchased for $50,000. Bonds payable (maturing in 20X5) in the amount of $30,000 were retired by paying $30,000 cash. Capital stock in the amount of $40,000 was issued at par value. The company sold surplus equipment for $14,000. The equipment had a book value of $14,000 at the time of the sale. Net income was $35,500. Cash dividends of $5,000 were paid to the stockholders. 100 shares of stock of another company (considered short-term investments) were purchased for $8,300. $75,000 in bonds were issued. The next day, the proceeds were used to purchase a new building. $12,000 of depreciation was recorded on the plant and equipment. At December 31, 20X1, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes payable were unchanged from 20X0. Required: Prepare a statement of cash flows for 20X1. Prepare the December 31, 20X1, balance sheet for Kay Wing, Inc.

Answer and Explanation:

The preparation of the statement of cash flow is shown below:-

                                     Kay wing, Inc.

                                Statement of Cash Flows

                          For the Year Ended December 31,2021

Particulars                                                          Amount

Cash flows from operating activities:

Net income                                                       $35,500

Adjustment

Depreciation expense              $12,000

Changes in current asset and liabilities  

Increase in accounts receivable -$4,500  

Increase in Inventory                   -$3,000

Decrease in accounts payable    -$7,500   -$3,000

Net Cash Provided by Operating activities  $32,500

Cash flows from Investing activities

Purchase of land                     -$50,000  

Sale of Equipment                   $14000

Purchase of short-term

investment                              -$8,300  

Net Cash Used by Investing

Activities                                                          -$44,300

Cash flows from Financing activities

Common Stock Issued          $40,000  

Bond payable                        -$30,000

Dividend paid                        -$5,000

Notes payable                       $35,000

Net Cash Provided by Financing activities   $40,000

Net increase (decrease) in cash                    $28,200

Cash Balance at December 31, 2020           $65,000

Cash Balance at December 31, 2021            $93,200

2. The Preparation of balance sheet is shown below:-

                                        Kay wing, Inc.

                                     Balance Sheet

                       For the Year Ended December 31,20X1

Asset  

Cash                               $93,200

Accounts receivable      $41,500

Inventory                        $73,000

Long-term investments $20,000

Land                               $89,000

Plant and equipment    $158,000

Short-term investment   $8,300

Total assets                    $483,000

Liabilities

Accounts payable          $25,500

Taxes payable                $4,000

Note payable                 $35,000

Bonds payable              $125,000

Stockholders equity

Capital stock                    $130,000

Retained earnings            $163,500

Total liabilities and stockholders

equity                               $483,000

Note:

Plant and equipment - Sale of equipment - Depreciation + Purchase of building

Plant and equipment =  $109,000 - $14,000 - $12,000 + $75,000

= $158,000

Retained earnings = Opening Retained earning + net income - dividend

= $133,000 + $35,500 - $5,000

= $163,500

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