Part A)

Part B)

Mastery Problem: Statement of Cash Flows Championship Boxing, Inc. Championship Boxing, Inc. is a small manufacturer of cardboard boxes of all sizes. You have reported for your first day of work, and the company is in an uproar. Yearly financial statements are being prepared, but a computer malfunction of the company's new BOX-9000 computer has inadvertently erased parts of the company's balance sheet, along with almost all related data except the company's statement of cash flows. The IT department is working to retrieve earlier backups, but estimates that the reconstruction of the data will take about 24 hours. Unfortunately, financial statements are to be presented at a stockholders' meeting in one hour. The company uses the indirect method to prepare its statement of cash flows (rather than the direct method), so your new supervisor believes the missing data for the balance sheet can be prepared using the statement of cash flows. You are assigned this task, since you were top student in your business school class. Meanwhile, the supervisor will go to the stockholders' meeting and give some introductory remarks. In addition to the statement of cash flows, the following data survived the computer mishap: The investments were sold for $280,000 cash. Equipment was acquired for $152,000 cash. Land was acquired for $326,000 cash. There were no disposals of equipment during the year. 12,500 shares of common stock were sold for cash during the year. There was a $96,000 debit to Retained Earnings for cash dividends declared. Statement of Cash Flows Your supervisor has provided you with the following statement of cash flows, prepared using the indirect method. Recall that the statement of cash flows consists of three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Review the statement, and then proceed to the next panel. Championship Boxing, Inc. Statement of Cash Flows For the Year Ended December 31, 2048 Cash flows from (used for) operating activities: Net income $186,540 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 18,400 Gain on sale of investments (50,000) Changes in current operating assets and liabilities: Increase in accounts receivable (25,390) (33,450) Increase in inventories Increase in accounts payable 41,100 Decrease in accrued expenses payable (12,480) $124,720 Net cash flow from operating activities Cash flows from (used for) investing activities: Cash received from sale of investments Cash paid for purchase of land Cash paid for purchase of equipment $280,000 (326,000) (152,000) Net cash flow used for investing activities (198,000) Cash flows from (used for) financing activities: Cash received from sale of common stock $187,500 (91,200) Cash paid for dividends Net cash flow from financing activities 96,300 $23,020 Net increase in cash Cash balance, January 1, 2048 585,920 Cash balance, December 31, 20Y8 $608,940 Balance Sheet Using the information on above, complete the following comparative balance sheet. Championship Boxing, Inc. Comparative Balance Sheet December 31, 2018 and 2017 2018 2017 Assets Cash $ 608,940 $585,920 Accounts receivable (net) Inventories 205,560 618,420 230,000 Investments Land 230,950 651,870 0 326,000 705,120 (166,400) 2,356,300 x 0 Equipment Accumulated depreciation equipment 553,120 148,000 2,045,020 Total assets $ $ Liabilities Accounts payable (merchandise creditors) $ 432,900 $391,800 53,630 V Accrued expenses payable (operating expenses) 41,150 24,000 Dividends payable 19,200 Total liabilities $498,050 $ 2,044,940 x Stockholders' Equity Common stock, $4 par $100,000 Paid-in capital in excess of par 280,000 Retained earnings 150,000 417,500 1,290,910 x $1,858,430 2,356,530 1,200,270 x Total stockholders' equity $ $ 1,580,370 X 2,045,000 x Total liabilities and stockholders' equity $ Effect of Transactions on Cash Flows State the effect (cash receipt or cash payment and amount of each of the following transactions, considered individually, on cash flows: a. Retired $310,000 of bonds, on which there was $3,100 of unamortized discount, for $322,000. b. Sold 7,000 shares of $10 par common stock for $23 per share. c. Sold equipment with a book value of $47,400 for $68,300. d. Purchased land for $390,000 cash. e. Purchased a building by paying $54,000 cash and issuing a $90,000 mortgage note payable. f. Sold a new issue of $260,000 of bonds at 97. g. Purchased 6,700 shares of $30 par common stock as treasury stock at $59 per share. h. Paid dividends of $2.00 per share. There were 19,000 shares issued and 3,000 shares of treasury stock. Effect Amount Cash payment $ 525,000 x Cash receipt Cash receipt Cash payment Cash payment Cash receipt Cash payment Cash payment Reporting Issuance and Retirement of Long-Term Debt On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the "Cash flows from financing activities" section of the statement of cash flows, assuming no gain or loss on retiring the bonds: ACCOUNT Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 600,000 Retire bonds 120,000 480,000 June 30 Issue bonds 360,000 840,000 ACCOUNT Discount on Bond Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. Balance 27,000 9,600 Retire bonds Issue bonds 24,100 June Dec. 30 31 17,400 41,500 39,420 Amortize discount 2,080 Items Section of Statement of Cash Flows Amount Added or Deducted Deducted Retire bonds Financing activities section to Issue bonds Financing activities section Added o Amortization of discount Operating activities section, if indirect method used Added to Determining Cash Payments to Stockholders The board of directors declared cash dividends totaling $177,100 during the current year. The comparative balance sheet indicates dividends payable of $47,800 at the beginning of the year and $43,000 at the end of the year. What was the amount of cash payments to stockholders during the year? $ 172,700 x The net income reported on the income statement for the current year was $222,000. Depreciation recorded on equipment and a building amounted to $66,400 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Cash Accounts receivable (net) Inventories Prepaid expenses Accounts payable (merchandise creditors) Salaries payable End of Year Beginning of Year $56,830 $59,670 72,060 73,630 142,080 126,860 7,900 8,410 63,480 66,590 9,150 8,290 a. Prepare the "Cash Flows from Operating Activities" section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments. Statement of Cash Flows (partial) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Changes in current operating assets and liabilities: Decrease in accounts receivable Increase in inventories Decrease in prepaid expenses Decrease in accounts payable Decrease in salaries payable x Net cash flow from operating activities