The following additional information is available — Julie Company came into existence with 000 cash investment owners January 2011

Julie Company came into existence with a $2,000 cash investment by owners on January 1, 2011, and entered into the following transactions during 2011:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,200

Cash expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,700)

Purchase of building on January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550

Purchase of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500

Sale of trading securities (cost, $200) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

Purchase of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Sale of available-for-sale securities (cost, $100) . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

The following additional information is available:

Balance in accounts receivable on December 31 . . . . . . . . . . . . . . . . . . . . . . . . . $190

Depreciation expense recognized for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Fair value of remaining trading securities on December 31 . . . . . . . . . . . . . . . . . 210

Fair value of remaining available-for-sale securities on December 31 . .. . . . . . . . 270

Instructions:

1. Prepare an income statement for 2011.

2. Prepare a complete statement of cash flows for 2011. Use the indirect method of reporting cash from operating activities. In all cases, assume that trading securities were acquired for operating purposes.

3. Prepare a balance sheet as of December 31, 2011.

SOLUTION

1. Income statement

Sales $ 3,200

Cash expenses (2,700)

Depreciation expense (50)

Operating income $ 450

Realized gain on sale of trading securities 140

Realized loss on sale of available-for-sale securities (40)

Unrealized loss on trading securities (90)

Net income $ 460

Available for sale:

Realized loss: $60 sales proceeds – $100 cost = $40 realized loss

Unrealized increase: $270 fair value – $200 cost ($300 – $100) = $70 unrealized increase

Trading:

Realized gain: $340 sales proceeds – $200 cost = $140 realized gain