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P23-8 Comparative Balance Sheet Accounts of Jensen Company

P23-8 Comparative balance sheet accounts of Jensen Company are presented below.

JENSEN COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
DECEMBER 31,
Debit Balances 2007 2006
Cash $80,000 $51,000
Accounts receivable 145,000 130,000
Merchandise inventory 75,000 61,000
Investments
(Available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $10,000 $8,000
Accumulated Depreciation - Equipment 21,000 14,000
Accumulated Depreciation - Building 37,000 28,000
Accounts payable 70,000 60,000
Income taxes payable 12,000 10,000
Long-term notes payable 62,000 70,000
Common stock 310,000 260,000
Retained earnings 88,000 95,000
Totals $610,000 $545,000

Additional data:

1. Equipment that cost $10,000 and was 40% depreciated was sold in 2007.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.

Jensen's 2007 income statement is as follows.

Sales $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes deprecation and bad debt expense)
250,000
Income from operations 100,000
Other revenues and expenses
Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $67,000

Instructions

a. Prepare a statement of cash flows using the indirect method.

Solution Preview

JENSEN COMPANY
Comparative Balance Sheet Accounts
December 31,
Increase Activity
Debit Balances 2007 2006 (Decrease)
Assets
Cash 80,000 51,000 29,000 Cash
Accounts receivable 145,000 130,000 15,000 Operating
Merchandise Inventory 75,000 61,000 14,000 Operating
Investments (Available-for-Sale) 55,000 85,000 -30,000 Investing
Equipment 70,000 48,000 22,000 Investing
Buildings 145,000 145,000 0 Investing
Land 40,000 25,000 15,000 Investing
Totals 610,000 545,000

Credit Balances
Allowance for Doubtful Accounts 10,000 8,000 2,000 Operating
Accumulated Depr. - Equipment 21,000 14,000 7,000 Operating
Accumulated Depr. - Building 37,000 28,000 9,000 Operating
Accounts payable 70,000 60,000 10,000 Operating
Income taxes payable 12,000 10,000 2,000 Operating
Long-term notes payable 62,000 70,000 -8,000 Financing
Common stock 310,000 260,000 50,000 Financing
Retained earnings 88,000 95,000 -7,000
Total liabilities and equity 610,000 545,000

Jensen Company's Income Statement
Sales $950,000
Less cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes
depreciation and bad debt expense) 250,000
Income from ...

Solution Summary

This solution is comprised of a detailed explanation to prepare a statement of cash flows using the indirect method.

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