Wong Corporation began operations on January 1, 2013. Its adjusted trial balance at December 31, 2013 and 2014 is shown below along with some other information.
Other information regarding Wong Corporation and its activities during 2014: a. Assume all accounts have normal balances. b. Equipment was purchased for $26,000 cash after selling old equipment for $8,000 cash. c. Common shares were issued for cash. d. Cash dividends were declared and paid. e. Machinery was sold for cash of $10,000. f. All revenues and other expenses were on credit.
Required Using the information provided, prepare a statement of changes in equity and a statement of cash flows (applying the indirect or direct method)* for the year ended December 31, 2014, plus a classified balance sheet at December 31, 2014. Analysis Component: Refer to the statement of cash flows just prepared. Explain how it was possible for Wong Corporation to purchase $26 (thousand) of new equipment and pay $20 (thousand) dividends given that the company’s net income was only $16(thousand).