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Question 2
A comparative statement of financial position for Carmichael Industries Inc. follows:
Carmichael Industries Inc.
Statement of Financial Position
December 31, 2021
| | 2021 | 2020 |
| Assets | | |
| Cash | 21,000 | 34,000 |
| Accounts receivable | 104,000 | 54,000 |
| Inventory | 220,000 | 189,000 |
| Land | 71,000 | 110,000 |
| Equipment | 260,000 | 200,000 |
| Accumulated depreciation - equipment | (69,000) | (42,000) |
| Total | 607,000 | 545,000 |
| | | |
| Liabilities and Shareholders Equity | | |
| Accounts payable | 52,000 | 59,000 |
| Bonds payable | 150,000 | 200,000 |
| Common shares | 214,000 | 164,000 |
| Retained Earnings | 191,000 | 122,000 |
| Total | 607,000 | 545,000 |
Carmichael Industries Inc.
Income Statement
For the Year Ended December 31, 2021
Net sales.................................................................................................. 620,000
Cost of goods sold . 186,000
Gross Profit ... 434.000
Operating expenses................................................................................. 205,000
Income from operations.......................................................................... 229,000
Other revenues and expenses
Gain on sale of land......................................................................... 5,000
Interest expense............................................................................... 8,000 (3,000)
Income before income taxes................................................................... 226,000
Income taxes........................................................................................... 97,000
Net income.............................................................................................. 129,000
Additional information:
- Net income for the fiscal year ending December 31, 2017 was $129,000.
- Cash dividends of $60,000 were declared and paid. Dividends paid are treated as financing activities.
- Bonds payable amounting to $50,000 were retired through issuance of common shares.
- Land was sold at a gain of $5,000.
- No equipment was sold during the year.
Required:
Prepare a statement of cash flows using the direct method.
Answer & Explanation
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