ACTG 318 – Practice Problem Set 3

1. Jack Lambert Inc. has contracted with you to prepare a statement of cash flows. The controller has provided the following information:

12/31/07 12/31/06
Cash $25,500 $13,000
Accounts Receivable 9,250 5,500
Inventory 12,000 9,000
Prepaid Insurance 0 3,000
Investment in Art (Picasso Paintings) 10,000 0
Building 0 29,750
Accumulated Depreciation on Building 0 (6,000)
Equipment 40,000 20,000
Accumulated Depreciation on Equipment (2,000) (4,500)
Patent 5,000 6,250 Totals $99,750 $76,000

Accounts payable $ 5,000 $ 3,000
Dividends payable 0 6,000
Notes payable, short-term 5,000 4,000
Long-term notes payable 31,000 25,000
Common stock 43,000 33,000
Treasury Stock (5,000) 0
Retained earnings 20,750 5,000 Totals $99,750 $76,000

Additional data related to 2007 are as follows: 1) Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2) $10,000 of the long-term note payable was paid by issuing common stock. 3) Jack Lambert Inc. declared cash dividends of $4,000 during 2007. 4) On January 1, 2007, the building was completely destroyed by a flood. Flood damage is unusual and infrequent in that part of the country. Insurance proceeds on the building were $33,000. 5) Equipment was purchased during 2007 with cash of $15,000 and a long-term note payable for the remainder of the cost. 6) Amortization Expense on the Patent for 2007 was $1,250. 7) Interest of $2,000 and income taxes of $5,000 were paid in cash.

Required:
Use the indirect method and the information above to prepare a 2007