Question

WINDSOR INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2017 AND 2016
		December 31
Debit Accounts		2017		2016
Cash		$42,200		$33,900
Accounts Receivable		71,100		60,200
Inventory		30,100		24,100
Equity investments		22,500		38,700
Machinery		29,900		18,900
Buildings		67,800		56,400
Land		7,600		7,600
		$271,200		$239,800
Credit Accounts
Allowance for Doubtful Accounts		$2,200		$1,500
Accumulated Depreciation—Machinery		5,700		2,300
Accumulated Depreciation—Buildings		13,600		9,000
Accounts Payable		34,700		24,500
Accrued Payables		3,500		2,600
Long-Term Notes Payable		21,100		30,700
Common Stock, no-par		150,000		125,000
Retained Earnings		40,400		44,200
		$271,200		$239,800

Additional data (ignoring taxes):

1.		Net income for the year was $42,500.
2.		Cash dividends declared and paid during the year were $21,300.
3.		A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.
4.		Equity investments (level of ownership is less than 20%) that cost $24,800 were sold during the year for $28,600. No unrealized gains and losses were recorded on these investments in 2017.
5.		Machinery that cost $3,800, on which $750 of depreciation had accumulated, was sold for $2,250.

Windsor’s 2017 income statement follows (ignoring taxes).

Sales revenue					$538,000
Less: Cost of goods sold					377,700
Gross margin					160,300
Less: Operating expenses (includes $8,750 depreciation and $5,691 bad debts)					120,800
Income from operations					39,500
Other: Gain on sale of investments		$3,800
Loss on sale of machinery		(800	)		3,000
Net income					$42,500

(b) Prepare a statement of cash flows using the indirect method.

Answer 1

Equity Investments
Opening Balance	38,700
Less: Sale	-24,800
Less: Closing Balance	-22,500
Cash Flow on Purchase of Equity Investment	-8,600

Retained Earnings Account
Opening Balance	44,200
Add: Current Year Profit	42,500
Less: Dividend	-21,300
Less: Retained Earnings Capitalised	-25,000
Closing Balance	40,400

Total Depreciation = 8,750

Depreciation on Buildings = 13,600-9000= 4,600

Depreciation on Machinery = 8,750 - 4,600 = 4,150

Machinery Account	Asset	Acc. Deprecation	Total
Opening Balance	18,900	2,300	21,200
Less: Sale	-3,800	-750	-4,550
Less: Depreciation	-	4,150	4,150
Less: Closing Balance	-29,900	-5,700	-35,600
Cash Flow on Purchases	-14,800	-	-14,800

Accounts Receivable Account
Opening Balance	60,200
Less: Bad Debts	-5,391
Less: Closing Balance	-71,100
Cash outflow on changes in Accounts Receivable	-16,291

Note: The Stock dividend paid and the capitalisation of retained earnings do not affect the cash balances. These are adjustments within the equity account. Hence the same is not reflected in the cash flow statement.

The Final Cash flow Statement looks like:

Cash Flow from Operating Activtiies		Comment
Net Income	42,500
Add: Non Cash and Non Operating Expenses
Loss on Sale of Machinery	800
Depreciation	8,750	This is a non-cash expense and hence needs to be added back.
Bad Debts	5,391	This is a non-cash expense and hence needs to be added back.
Less: Non Cash and Non Operating Income
Gain on Sale of Investments	-3,800	This is non-operating expense and hence needs to be added back
Add/Less: Changes in Working Capital
Less: Increase in Accounts Receivable	-16,291
Less: Increase in Inventory	-6,000
Add: Increase in Accounts Payable	10,200
Add: Increase in Accrued Payable	900
Add: Increase in Credit Allowance for Doubtful Accounts	700
Total Cash from Operating Activities	43,150
Cash Flow from Investing Activities
Sale of Equity Investments	28,600
Purchase of Equity Investments	-8,600
Sale of Machinery	2,250
Purchase of Machinery	-14,800
Purchase of Buildings	-11,400
Total Cash used in investing activities	-3,950
Cash Flow from Financing Activities
Repayment of Long Term Notes	-9,600
Equity Dividend Paid	-     21,300
Total Cash used in financing activities	-30,900
Opening Cash Balance	33,900
Total Cash Inflow (A + B + C)	8,300
Expected Closing Cash Balance	42,200
Actual Closing Cash Balance	42,200