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The 2017 and 2016 balance sheets of Wallace Corporation follow. The 2017 income statement is also...

Question

The 2017 and 2016 balance sheets of Wallace Corporation follow. The 2017 income statement is also...

The 2017 and 2016 balance sheets of Wallace Corporation follow. The 2017 income statement is also provided. WallaceWallace had no noncash investing and financing transactions during 2017. During the​ year, the company sold equipment for $15,300​, which had originally cost $13,600 and had a book value of $11,400. The company did not issue any notes payable during the year but did issue common stock for $35,000. The company purchased plant assets and​ long-term investments with cash.

Wallace Corporation

Income Statement

For the Year Ended December 31, 2017

Sales revenues

$348,000

Less: Cost of goods sold

73,000

Gross profit

$275,000

Less operating expenses:

Salaries and wages expense

$26,000

Depreciation expense

4,600

Other operating expenses

14,000

Total operating expenses

44,600

Operating income

$230,400

Plus other income and less other expenses:

Interest expense

9,700

Gain on sale of PP&E

3,900

Total other income and expenses

5,800

Income before income taxes

224,600

Less: Income tax expense

37,300

Net income

$187,300

Wallace Corporation

Comparative Balance Sheets

December 31, 2017 and 2016

Assets

2017

2016

Current assets:

Cash

$52,000

$23,500

Accounts receivable

31,800

29,700

Inventory

86,000

93,600

Prepaid insurance

3,000

2,400

Total current assets

$172,800

$149,200

Property, plant, and equipment

155,000

136,000

Less: Accumulated depreciation

(30,200)

(27,800)

Investments

115,000

0

Total assets

$412,600

$257,400

Liabilities

Current liabilities:

Accounts payable

$33,000

$36,600

Wages payable

2,600

7,700

Interest payable

2,500

0

Income taxes payable

5,200

0

Other accrued expenses payable

18,600

22,100

Total current liablities

$61,900

$66,400

Long-term liabilities

77,000

116,000

Total liabilities

$138,900

$182,400

Stockholders' equity

Common stock

$107,000

$72,000

Retained earnings

166,700

3,000

Total stockholders' equity

$273,700

$75,000

Total liabilities and equity

$412,600

$257,400

\

Requirements

1. Prepare the statement of cash flows for WallaceWallace Corporation for 2017 using the indirect method.

2. Evaluate the​ company's cash flows for the year. Discuss each of the categories of cash flows in your response.

Answers

1 Wallace Wallace Corporation
Cash Flow Statement
For Current Year Ended December 31 2017
Cash flow from Operating Activities
Net Income $187,300
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense $4,600
Inventory Decrease $7,600
Decrease in Prepaid insurance -$600
Account payable decrease -$3,600
Decrease in wages payable -$5,100
Income taxes payable increase $5,200
Account receivable increase -$2,100
Decrease in other accrued expense payable -$3,500
Interest expense $9,700
Gain on sale of PP&E -$3,900
(A) Net cash generated from Operating Activities $195,600
Cash flow from Investing activities
Purchase of PP&E(Working Note-1) -$32,600
Sale of PP&E(given in question) $15,300
Purchase of Investments -$115,000
(B) Net cash used in Investing activities -$132,300
('C) Cash flow from financing activities
Interest paid( 9700+opening interest payable-closing interest payable) = 9700-2500 -$7,200
Payment of long term liabilities(Note payable) -$39,000
Issue of Common stock $35,000
Dividend paid(Working Note-2) -$23,600
Net cash used in financing activities -$34,800
Net Increase/(decrease) in Cash (A+B+C) $28,500
Cash balance at December 31, 2016 $23,500
Cash balance at December 31, 2017 $52,000
Working Note-1
Calculation of Addition/Deletion in Property, Plant and equipment
Opening PP&E $136,000
Less: PP&E sold during the year $13,600
$122,400
Closing Balance (155,000-122,400) $155,000
Hence, Purchase of PP&E $32,600
Working Note -2
Calculation of Dividend paid
Opening balance in retained earnings $3,000
Add: Profit earned during the year $187,300
Less: Closing balance of retained earnings $166,700
Dividend paid $23,600
2 Cash flows from Operating $195,600
Cash flows from Investing -$132,300
Cash flows from Financing -$34,800
(a) The overall cash flow of the company is positive $28,500, which is good sign. Further the Operating cash flows of the company is positive which is a good sign for Company.
(b) Cash flows from Investing activities are Negative, It implies that Company is investing money. Investment helps the company in growth.
(c ) The Financing cash flows are negative mainly due to payment of loan note and dividend.

Please Note that answer of part 2 of the question is subjective matter and it depends upon marks of the question allocated to it. I've highlighted the main points. If you need more explanation please let me know in the comment section.

Please give "thumps Up'' if you are satisfied with my answer. Your "thumps Up " is of immense value to me.


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