Question

# Income Statement Sales \$ 15,000 Operating expenses COGS \$ 11,000 Depreciation

 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)?

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

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