Comparative balance sheets at the end of 2010 and 2011 the

Question

Satellite 2010 was founded in 2010 to apply a new technology for efficiently transmitting closed-circuit (cable) television signals without the need for an in-ground cable. The company earned a profit of $115,000 in 2010, its first year of operations, even though it was serving only a small test market. In 2011, the company began dramatically expanding its customer base. Management expects both sales and net income to more than triple in each of the next five years.

 

Comparative balance sheets at the end of 2010 and 2011, the company's first two years of operations, follow. (Notice that the balances at the end of the current year appear in the right-hand column.)

 

Additional Information

The following information regarding the company's operations in 2011 is available in either the company's income statement or its accounting records:

 

1.	Net income for the year was $440,000. The company has never paid a dividend.
2.	Depreciation for the year amounted to $147,000.
3.	During the year the company purchased plant assets costing $2,200,000, for which it paid $1,850,000 in cash and financed $350,000 by issuing a long-term note payable. (Much of the cash used in these purchases was provided by short-term borrowing, as described below.)
4.	In 2011, Satellite 2010 borrowed $1,450,000 against a $6 million line of credit with a local bank. In its balance sheet, the resulting obligations are reported as notes payable (short-term).
5.	Additional shares of capital stock (no par value) were issued to investors for $500,000 cash.

 

SATELLITE 2010 COMPARATIVE BALANCE SHEETS
	December 31,
	2010			2011
Assets
Cash and cash equivalents	$	80,000		$	37,000
Accounts receivable		100,000			850,000
Plant and equipment (net of accumulated depreciation)		600,000			2,653,000
Totals	$	780,000		$	3,540,000
Liabilities & Stockholders' Equity
Notes payable (short-term)	$	- 0 -		$	1,450,000
Accounts payable		30,000			63,000
Accrued expenses payable		45,000			32,000
Notes payable (long-term)		390,000			740,000
Capital stock (no par value)		200,000			700,000
Retained earnings		115,000			555,000
Totals	$	780,000		$	3,540,000

 

Instructions

 

a.	Prepare a worksheet for a statement of cash flows. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

 

SATELLITE 2010 Worksheet for a Statement of Cash Flows For the Year Ended December 31, 2011
Balance sheet effects:	Effects of Transactions
	Beginning Balance	Debit Changes	Credit Changes	Ending Balance
Assets
Cash and cash equivalents
Accounts receivable
Plant and equipment (net of accumulated depreciation)
Totals
Liabilities & Owners' Equity
Notes payable (short-term)
Accounts payable
Accrued expenses payable
Notes payable (long-term)
Capital stock (no par)
Retained earnings
Totals

 

b.	Prepare a statement of cash flows for 2011 by the indirect method.  (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

 

SATELLITE 2010 Statement of Cash Flows For the Year Ended December 31, 2011
Cash flows from operating activities:
		$
Subtotal		$
	$
Net cash operating activities		$
Cash flows from investing activities:
	$
Net cash investing activities
Cash flows from financing activities:
	$
Net cash financing activities
		$
Cash and cash equivalents, January 1, 2011
Cash and cash equivalents, Dec. 31, 2011		$