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

2011 2010

Assets

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

Income Statement

For Year Ended December 31, 2011

Sales $ 582,500

Cost of goods sold 285,000

Gross profit 297,500

Operating expenses

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.

Required:

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.)

***SEE UPLOADED FILE ATTACHED***

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