Clone statement of cash flow mid term TEST

DATA
Balance Sheet	2009	2010
Cash	$15,000	$14,000
Marketable Securities	6,000	6200
Receivables	42,000	33,000
Inventory	51,000	84,000
Prepaid expenses	1,200	1,100
Total current assets	$115,200	$138,300
Gross plant and equipment	270,000	260,000
Less: accumulated depreciation	-30,000	-60,000
Total assets	401,200	408,300
	2009	2010
Accounts payable	$48,000	$57,000
Accruals	6,000	5,000
Notes payable	15,000	13,000
Total current liabilities	$69,000	$75,000
Long-term debt	160,000	150,000
Common stock	172,200	183,300
Total liabilities and equity	$401,200	$408,300

Sales		$600,000
Cost of goods sold		460,000
Gross profit		140,000
Less: Operating and interest expenses:
General and administration	30,000
Interest	10,000
Depreciation	30,000
Total Operating and interest expenses		70,000
Earnings before taxes		70,000
Less: Taxes		27,100
Net income available to common stockholders		42,900
Less: Cash dividends		31,800
Change in Retained earnings		$11,100

solution for the Q

Statement of Cash Flows
Cash Flows from Operating Activities
Net Income	42,900
Adjustments
Depreciation	30,000	72,900
Increase in marketable securities		(200)
Decrease in accounts receivable		9,000
Prepaid Expenses		100
Increase in inventories (less A/P)33,000-9000)		(24,000)
Decrease in accruals		(1,000)
Decrease in notes payable		(2,000)
Net cash provided by operating activities		$54,800
Cash Flows from Investing Activities
Increase in gross plant and equipment***		(14,000)
		$40,800
Cash Flows from Financing Activities
Decrease in debt	(10,000)
Dividends	(31,800)	-41,800
Net cash provided by financing activities		($1,000)
Net decrease in cash	(1,000)
Cash, January 1, 2010	15,000
Cash, December 31, 2010	14,000

you may ask yourself whether this Balance sheet is right or not.

Tricks in this Q

First of all, you have to know what is the equation for the Balance sheet.

Balance sheet Equation is Total assets = Total liabilities + Total debt

whatever the amount in balance sheet will be, you have to bear in your mind the balance sheet equation is always right Total Assets = total liabilities (debt) + total shareholders' equity

both side must be equal

if the amount of total assets is 500,000, thus the amount of Total debt and equity is also will be 500,000

what is actually trick in this Q?

firstly, take a a look at the gross fixed assets, based on this Balance sheet, the amount of gross fixed assets is 270,000 for 2009 and 260,000 for 2010. i know most of you get confuse in this amount of gross fixed assets because if you minus with the accumulated depreciation you will get Net fixed assets $240,000 for 2009 and $200,000, as a result your balance sheet will be unbalanced with the amount of Total debt and equity ( $401200 for 2009 and $408300 for 2010).

Balance Sheet	2009	2010
Cash	$15,000	$14,000
Marketable Securities	6,000	6200
Receivables	42,000	33,000
Inventory	51,000	84,000
Prepaid expenses	1,200	1,100
Total current assets	$115,200	$138,300
Gross plant and equipment	270,000	260,000
Less: accumulated depreciation	-30,000	-60,000
Total assets	401,200	408,300

Gross plant and equipment - accumulated depreciation

270,000 - 30,000 = 240,000 for 2009

260,000 - 60,000 = 200,000 for 2010

therefore in 2009- 240,000 + 115,200 = 355,200 .. oh my gosh,,,"nape x sama dgn total assets sebenar????"

in 2010- 200,000 +138,300 = 338,300.."what the fish,,napa ni pun x sama dgn total assets sebenar???'

anda pun akan buat keputusan yang balance sheet ni salah."ala sir buat balance sheet salah ni" and byk lagi persoalan yng timbul di dalam fikran anda...actually, the balance sheet is totally correct, so what is the problem with the B.S

why the B.S be like this??????

because the amounts of gross fixed assets in this balance sheet are not adjusted yet.

so, you have to make an adjustment to get the adjusted amount of gross profit for both years.

as i mentioned before, the balance sheet equation is always right, there is no doubt with the amount given in this balance sheet. balance sheet for 2009 Total assets = 401200 and total debt and equity = 401200

balance sheet for 2010 Total assets = 408,300 and Total debt and equity must be 408,300 also :-)

Total Assets = total liabilities (debt) + total shareholders' equity

Total current assets	$115,200	$138,300
Gross plant and equipment	270,000	260,000
Less: accumulated depreciation	-30,000	-60,000
Total assets	401,200	408,300

to find the real Gross plant and equipment for 2009

1 step- you have to minus the amount total assets with total current assets so that u will get the amount of net plant and equipment. current assets + net fixed assets = total assets

Net plant and equipment = $401,200 - 115,200(total current assets) = 286,000

thus, the amount of net plant and equipment is $286,000

2 step - in order to get the real adjusted amount of Gross plant and equipment, you must add back the amount of depreciation with the amount of net plant and equipment

Net plant and equipment + Accumulated depreciation

286,000 + 30,000 = 316,000

repeat the same step to get the amount of gross plant and equipment for the year 2010

and you will get $330,000

now, you are already get the real amount of gross plant and equipment for both years.

Adjusted Balance sheet

Total current assets	$115,200	$138,300
Gross plant and equipment	316,000	330,000
Less: accumulated depreciation	-30,000	-60,000
Total assets	401,200	408,300

therefore, in the statement of cash flow,increasing ( buying the new plant and equipment) in gross plant and equipment is amounted $14000

Cash Flows from Investing Activities
Increase in gross plant and equipment***		(14,000)