Answered Essay: Swasey Company provided the following partial comparative balance sheets and the income statement for 20X2.

Swasey Company provided the following partial comparative balance sheets and the income statement for 20X2.

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Swasey Company
Comparative Balance Sheets
At December 31, 20X1 and 20X2
1 20X1 20X2
2 Current assets:
3 Cash $234,500.00 $672,000.00
4 Accounts receivable $747,000.00 $585,000.00
5 Inventories 296,000.00 318,000.00
6 Long-term assets:
7 Plant and equipment 2,202,000.00 2,140,000.00
8 Accumulated depreciation (1,202,000.00) (1,270,000.00)
9 Land 991,000.00 1,437,500.00
10 Total assets $3,268,500.00 $3,882,500.00
11 Current liabilities:
12 Wages payable $699,000.00 $514,000.00
13 Long-term liabilities:
14 Bonds payable 0.00 384,500.00
15 Mortgage payable 96,500.00 0.00
16 Total liabilities $795,500.00 $898,500.00
17 Stockholders’ equity:
18 Common stock 380,000.00 380,000.00
19 Paid-in capital in excess of par 276,000.00 276,000.00
20 Retained earnings 1,817,000.00 2,328,000.00
21 Total stockholders’ equity 2,473,000.00 2,984,000.00
22 Total liabilities and stockholders’ equity $3,268,500.00 $3,882,500.00

Question not attempted.

Swasey Company
Income Statement
For the Year Ended December 31, 20X2
1 Revenues $3,010,000.00
2 Gain on sale of equipment 104,000.00
3 Cost of goods sold (1,918,000.00)
4 Depreciation expense (276,000.00)
5 Interest expense (12,500.00)
6 Net income $907,500.00

During the year, Swasey Company sold equipment with a book value of $279,000 for $383,000 (original purchase cost of $487,000). New equipment was purchased.

Required:
1. Prepare a statement of cash flows for Swasey for 20X2.
2. Reflect on the relationship between the statement of cash flows and the change in cash.

Expert Answer

 

Answer 1.

Purchase of Equipment = Ending Equipment + Cost of Equipment Sold – Beginning Equipment
Purchase of Equipment = $2,140,000 + $487,000 – $2,202,000
Purchase of Equipment = $425,000

Cash Dividend = Beginning Retained Earnings + Net Income – Ending Retained Earnings
Cash Dividend = $1,817,000 + $907,500 – $2,328,000
Cash Dividend = $396,500

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