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    Dividends / Sale of Equipment

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    My problem is, I do not see how my instructor reached in the "indirect methodology" for "financing activities" how he achieved dividends of; -61,200

    And for the "investing activities", how my professor reached 36,000 for sale of equip.

    Please help show me how he reached these values.

    1. New equipment costing $59,000 was purchased during the
    year.

    2. Equipment sold during the year produced a loss of $12,000.

    3. You obtained selected industry average ratios for publicly traded furniture
    companies of this type for 2005. These are as follows:

    2005
    Industry Average
    Return on equity
    (NI/equity) 10 %
    Return on Assets
    (NI+int.(1-tax rate)/T Assets) 8 %
    Current ratio (CA/CL) 1.8:1
    Debt/T. Liabilities & equity ratio 0.44
    Sales/ Accounts receivable 6 times
    Inventory turnover
    (C. of G. Sold/Invent.) 4 times
    Earnings per share $1.60

    Sighing deeply, and trying to remember if things were ever this difficult in graduate school, you commenced the project.

    Required : Assume your role as administrative assistant to the president of Aldrig. Prepare a Cash Flow Statement for Baltog Ltd..
    Baltog Ltd.
    Balance Sheets
    As as December 31

    2005 2004
    Assets
    Cash $ 83,000 $ 61,000
    Marketable securities 5,000 0
    Accounts receivable(net) 250,000 211,000
    Inventories 269,000 245,000
    Total current assets $607,000 $517,000
    Land $50,000 $ 0
    Plant and equipment 950,000 958,000
    Accumulated amortization (180,000) (102,000)
    Patents(net) 65,000 74,000
    Total Long-term assets $885,000 $930,000
    Total Assets $1,492,000 $1,447,000

    Liabilities and Equities
    Accounts payable $ 218,000 $ 179,000
    Dividends payable 0 15,000
    Other current liabilities 64,000 161,000
    Total current liabilities $282,000 $355,000
    Loans payable 340,000 300,000
    Deferred income taxes 24,000 20,000
    Total Long-term Liabilities $364,000 $320,000
    Total Liabilities $646,000 $675,000
    Shareholders' equity
    Common stock(60,000 shares in $350,000 $ 300,000
    2002; 70,000 in 2003)
    Retained earnings 496,000 472,000
    Total Owners' equity $846,000 $772,000
    Total Liab.& Owners' equity $1,492,000 $1,447,000

    Baltog Ltd.
    Statement of Income
    for the year ended December 31, 2005

    Sales $1,083,000
    Cost of goods sold 596,000
    Gross margin $487,000
    Less: Operating expenses
    Operating, selling & admin $240,000
    Interest 13,000
    Amortization 106,000
    Other operating 8,000 367,000
    Net operating income 120,000
    Loss on sale of
    equipment (12,000)
    Net income before taxes $108,000
    Less: Income taxes (tax rate is 35%) 37,800
    Net income $70,200.

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    Solution Preview

    Let us start with dividends.

    Ending Retained Earnings = Beginning Retained Earnings + Net income - Dividends
    or
    Change in Retained Earnings = Net Income - Dividends
    From the balance sheet, the change in retained earnings is 496,000-472,000=24,000
    Net Income us 70,200
    So dividend declared for the current period is
    Dividends = 24,000-70,200=46,200
    In the balance sheet ...

    Solution Summary

    The solution explains how to amount of dividends and the cash inflow from sale of assets was calculated in the statement of cash flows.

    $2.19

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