Question

1.) During 2015, Orton Company earned net income of $500,000, which included depreciation expense of $54,000 and a gain on the sale of equipment of $21,000. In addition, the company experienced the following changes in the account balances listed below:

Increases -------------------------- Decreases

Accounts Payable $45,000 ------ Accounts Receivable $12,000

Prepaid Insurance $33,000 ------ Accrued Liabilities $24,000

N/A ------------------------------------Inventory $45,000

Prepare the Net Cash Flow from Operating Activities: (Good form - Just don't show numbers. If you just show numbers, you will not get any credit)

2.) Willie Company's retained earnings increased $35,000 during 2016. What was Willie's 2016 net income or loss given that Willie declared $28,000 of dividends during 2016? Show your work.

3.) Prepare the journal entries for the following transactions (Make sure debits are to the left and credits are to the right - Formatting and Presentation is very important)

a.) Chipotle issued 5,000 additional shares of common stock with a par value of $1.50 per share at a market value of $12.00 per share, receiving $60,000 in cash from investors.

b.) Chipotle borrowed $25,000 from its local bank, signing a note to be paid in three years.

c.) Chipotle purchased $15,000 in additional land, $25,000 in new buildings, and $10,000 in new equipment; paid $30,000 in cash and signed a note payable for the remainder owed.

d.) Collected $20,000 of accounts receivable.

e.) Paid $15,000 of accounts payable.

***This question has three parts. Please show all work and explain if possible! Thanks!

Answer 1

1.)

Orton Company
Partial cash flow statement (Operating activities section)
For the year ended 2015
Net income		500,000
Adjustments to reconcile net income to net cash flow from operating activities:
Add: Depreciation expenses	54,000
Less: Gain on the sale of equipment	(21,000)	33,000
Add: Depreciation expenses
Changes in current assets and current liabilities:
Add: Increase in accounts payable	45,000
Add: Decrease in accounts receivable	12,000
Less: Increase in prepaid insurance	(33,000)
Less: Decrease in accrued liabilities	(24,000)
Add: Decrease in inventory	45,000	45,000
Net cash flow from operating activities		578,000

2.)

Increase in retained earnings during 2016	35,000
Add: Dividend declared	28,000
Net income earned in 2016	63,000

3.)

Transaction	Account title and explanation	Debit	Credit
a.)	Cash (5,000 x $12.00)	60,000
	Common stock (5,000 x $1.50)		7,500
	Paid in capital in excess of par - Common stock		52,500
	(To record the issuance of common stock)
b.)	Cash	25,000
	Note payable		25,000
	(To record the amount borrowed from bank)
c.)	Land	15,000
	Building	25,000
	Equipment	10,000
	Note payable (Balancing figure)		20,000
	Cash		30,000
	(To record the purchase of fixed assets)
d.)	Cash	20,000
	Accounts receivable		20,000
	(To record the collection of cash)
e.)	Accounts payable	15,000
	Cash		15,000
	(To record the payment of cash)