Question

Income Statement
Sales			$ 15,000
Operating expenses
COGS		$ 11,000
Depreciation		800
Admin expenses		1,500
Total operating expense			13,300
Operating income			1,700
Interest revenue			200
Gain on disposal of equipment			400
Income before taxes			2,300
Income tax			920
Net income			$    1,380
Balance sheet
Assets	This year	Last year
Cash	$    3,000	$    1,100
A/R	500	530
Inventory	850	820
Prepaid Ins	150	200
Equipment	1,800	2,400
Less: Acc Depr	(900)	(600)
Total Assets	$    5,400	$    4,450
Liabilities & SE
A/P	$    1,500	$    1,300
Unearned revenue	$        500	$        400
L/T Note payable	300	500
Common Stock	800	900
Retained earnings	2,300	1,350
Total liabilties &SE	$    5,400	$    4,450
Equipment was sold and dividends were paid.
a. How much was paid out in dividends?
b. How much was equipment sold for?
c. What are total cash flows (Op+Inv+Fin)?

Answer 1

Solution a:

Amount of dividend paid = Beginning retained earnings + Net income - Ending retained earnings

= $1,350 + $1,380 - $2,300 = $430

Solution b:

Cost of equipment sold = $2,400 - $1,800 = $600

Accumulated depreciation on equipment sold = Accumulated depreciation at begginning + Depreciation expense - Accumulated depreciation at year end

= $600 + $800 - $900 = $500

Carrying value of equipment sold = $600 - $500 = $100

Gain on disposal of equipment = $400

Sale value of equipment = Carrying value + Gain = $100 + $400 = $500

Solution c:

Total cash flows = Change in cash = Ending cash - Beginning cash = $3,000 - $1,100 = $1,900