PROBLEM 23.
(a) Net Cash Flow from Operating Activities
Cash received from customers ................................................... €524,8501
Cash payments:
Cash payments to suppliers ................................................. €375,7502
Cash payments for operating expenses .............................. 105,6753 481,425
Net cash provided by operating activities ................................. € 43,425
1
€540,000 – €10,500 – €4,650* = €524,850
2
€380,000 + €6,000 – €10,250 = €375,750
3
€120,450 – €8,625 – €750** – €5,400 = €105,675
*Writeoff of accounts receivable.
(€1,500 + €5,400 – €2,250)
**Increase in accrued payables
(b) MARCUS AG
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ........................................................................... €42,500
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ................................................ € 8,625
Gain on sale of investments...................................... (3,750)
Loss on sale of machinery ........................................ 800
Increase in accounts receivable (net) ...................... (9,750)*
Increase in inventory ................................................. (6,000)
Increase in accounts payable ................................... 10,250
Increase in accrued payables ................................... 750 925
Net cash provided by operating activities ........................ 43,425
Cash flows from investing activities
Purchase of equity investments
€22,250 – (€38,500 – €25,000)..................................... (8,750)
Purchase of machinery
€30,000 – (€18,750 – €3,750)....................................... (15,000)
Addition to buildings ...................................................... (11,250)
Sale of investments ........................................................ 28,750
Sale of machinery ........................................................... 2,200
Net cash used by investing activities ........................... (4,050)
Cash flows from financing activities
Reduction in long-term notes payable.......................... (10,000)
Cash dividends paid ....................................................... (21,125)
Net cash used by financing activities ........................... (31,125)
Net increase in cash.................................................................. 8,250
Cash, January 1, 2019 ............................................................... 33,750
Cash, December 31, 2019 ......................................................... €42,000
*(€70,500 – €2,250) – (€60,000 – €1,500)
PROBLEM 24.1
ALMADEN AG
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Long-term investments
Investments in land........................... € 185,000
Cash restricted for plant
expansion ....................................... 300,000
€485,000
Property, plant, and equipment
Plant and equipment
(pledged as collateral
for bonds)
(€4,130,000 + €1,430,000).............. €5,560,000
Less accumulated
depreciation............................ 1,430,000 4,130,000
Land.................................................... 564,700
4,694,700
Intangible assets
Goodwill .............................................
252,000
Current assets
Prepaid expenses ............................. 62,400
Inventories ......................................... 645,100
Notes receivable ............................... 162,300
Accounts receivable
(€480,000 + €30,000)....................... 510,000
Less allowance for
doubtful accounts .................. 30,000 480,000
Cash (€571,000 – €300,000) .............. 271,000
Total current assets............ 1,620,800
Total assets ......................... €7,052,500
PROBLEM 24.1 (Continued)
Equity and Liabilities
Equity
Share capital—ordinary,
par value €10 per share;
authorized 200,000 shares;
184,000 shares issued and
outstanding....................................... €1,840,000
Share premium—ordinary .................... 150,000 €1,990,000
Retained earnings ............................... 2,545,600*
Total equity............................ €4,535,600
Non-current liabilities
Notes payable (due 2022) ................... 157,400
8% bonds payable (secured
by plant and equipment).................. 750,000 907,400
Current liabilities
Accounts payable ............................... 510,000
Unearned revenue ............................... 489,500
Dividends payable............................... 200,000
Accrued wages payable ..................... 225,000
Estimated income taxes
payable .............................................. 145,000
Accrued interest payable
(€750,000 X 8% X 8/12) ..................... 40,000
Total current liabilities............ 1,609,500
Total liabilities ....................... 2,516,900
Total equity and
liabilities ............................. €7,052,500
*Retained earnings €2,810,600
Accrued wages omitted (225,000)
Accrued interest (40,000)
€2,545,600
PROBLEM 24.1 (Continued)
Additional comments:
1. The information related to the competitor should be disclosed because this
innovation may have a significant effect on the company. The value of the
inventory is overstated because of the need to reduce selling prices. This
factor along with the net realizable value of the inventory should be
disclosed.
2. The pledged assets should be described in the statement of financial position
as indicated or in a footnote.
3. The error in calculating inventory will have been offset, so no adjustment is
needed.
4. Accrued wages is included as a liability and retained earnings is reduced.
5. The fact that the gain on sale of certain plant assets was credited directly to
retained earnings has no effect on the statement of financial position
presentation.
6. Technically, the plant and equipment account should be separately dis-
closed and depreciation computed on each item individually. However, the
information to divide the accounts was not given in this problem.
7. Accrued interest on the bonds (€750,000 X 8% X 8/12 = €40,000) was never
recorded. This amount will also reduce retained earnings.
8. Since the loss from heavy damage was caused by a fire after the financial
statement date, this event does not reflect conditions existing at that date.
Thus, adjustment of the financial statements is not necessary. However, the
loss should be disclosed in a note, especially since users of the financial
statements who may have read about the fire in the newspaper, would likely
be looking for disclosure of the financial implications.
