Kate Middleton Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts
Kate Middleton Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s balance sheets and income statement follow.
KATE MIDDLETON COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010
Cash $ 49,000 $ 73,000
Accounts receivable 65,900 58,000
Merchandise inventory 275,000 252,000
Prepaid expenses 1,000 1,800
Equipment 158,500 106,500
Accum. depreciation—Equipment (30,125) (40,000)
Total assets $ 519,275 $ 451,300
Liabilities and Equity
Accounts payable $ 42,025 $ 111,000
Short-term notes payable 12,000 6,000
Long-term notes payable 70,000 49,000
Common stock, $5 par value 162,250 150,250
Paid-in capital in excess of par, common stock 36,000 0
Retained earnings 197,000 135,050
Total liabilities and equity $ 519,275 $ 451,300
KATE MIDDLETON COMPANY
For Year Ended December 31, 2011
Sales $ 582,500
Cost of goods sold 285,000
Gross profit 297,500
Depreciation expense $ 20,000
Other expenses 133,600 153,600
Other gains (losses)
Loss on sale of equipment 5,500
Income before taxes 138,400
Income taxes expense 24,250
Net income $ 114,150
Additional Information on Year 2011 Transactions
a. The loss on the cash sale of equipment was $5,500 (details in b).
b. Sold equipment costing $46,875, with accumulated depreciation of $29,875, for $11,500 cash.
c. Purchased equipment costing $98,875 by paying $35,000 cash and signing a long-term note payable for the balance.
d. Borrowed $6,000 cash by signing a short-term note payable.
e. Paid $42,875 cash to reduce the long-term notes payable.
f. Issued 2,400 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of $52,200.
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)
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