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Accounting Problem - SCF (Statement of Cash Flow)

P23-1

(SCF-Indirect Method) The following is Blue Man Corp's comparative balance sheet accounts at December 31, 2008 and 2007, with a column showing the increase (decrease) from 2007 to 2008.

Comparative Balance Sheets

2008 2007 Increase or (Decrease)

Cash $807,500 $700,000 $107,500

Account Receivable 1,128,000 1,168,000 (40,000)

Inventories 1,850,000 1,715,000 135,000

Property Plant and Equipment 3,307,000 2,967,000 340,000

Accumulated depreciation (1,165,000) (1,040,000) (125,000)

Investment in Blige Co. 305,000 275,000 30,000

Loan Receivable 262,500 --- 262,500

Total Assets $6,495,000 $5,785,000 $710,000

Account Payable $1,015,000 $ 955,000 $ 60,000

Income Tax Payable 30,000 50,000 (20,000)

Dividend Payable 80,000 100,000 (20,000)

Capital lease obligation 400,000 ---- 400,000

Capital stock, common, $1 par 500,000 500,000 --------

Additional Paid in capital 1,500,000 1,500,000 -----------

Retained Earnings 2,970,000 2,680,000 290,000

Total Liabilities and stockholders'
Equity $6,495,000 $5,785,000 $710,000

Additional Information:

1- On December 31,2007, Blue Man acquired 25% of Bidge Co's common stock for $275,000. On that date, the carrying value of Blige's assets and liabilities, which approximated their fair values, was $1,100,000. Blidge reported income of $120,000 for the year ended December 31, 2008. No dividend was paid on Blige's common stock during the year.
2- During 2008, Blue Man loaned $300,000 to TLC Co. an unrelated company. TLC made the first semi-annual principal repayment of $37,500, plus interest at 10%. On December 31, 2008.
3- On January 2, 2008, Blue Man sold equipment costing $60,000, with carrying amount of $35,000 for $40,000 cash.
4- On December 31, 2008, entered into a capital lease for and office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Blue Man made the first rental payment $60,000 when due on January 2, 2009.
5- Net Income for 2008 was $370,000.
6- Blue Man declared and paid cash dividends for 2008 and 2007 as shown below:

2008 2007

Declared December 15,2008 December 15, 2007

Paid February 28, 2009 February 28, 2008

Amount $80,000 $100,000

Instructions:

Prepare a statement of cash flows for Blue Man Corp. for year ended December 31, 2008, using the indirect method.

Solution Summary

The solution examines the statement of cash flows.

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