The balance sheet of Poodle Company at the end of 2009 is presented here, along with certain other information for 2010 — follows

The balance sheet of Poodle Company at the end of 2009 is presented here, along with certain other information for 2010:

.:.

Other information is as follows:

a. Net income for 2010 was $50,000.

b. Included in operating expenses was $25,000 in depreciation.

c. Cash dividends of $40,000 were declared and paid.

d. An additional $50,000 of common stock was issued for cash.

e. Bonds payable of $100,000 were purchased for cash and retired at no gain or loss.

f. Cash purchases of plant and equipment during the year were $60,000.

g. An additional $200,000 of land was acquired in exchange for a long-term note payable.

h. During the year, sales exceeded cash collections on account by $15,000. All sales are on account.

i. The amount of current liabilities decreased by $20,000 during the year.

Required

1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section. Include a supplemental schedule for noncash activities.

2. Prepare a balance sheet at December 31, 2010.

3. What primary uses did Poodle make of the cash it generated from operating activities?

SOLUTION:

1. Changes in account balances and explanations (in thousands of dollars):

Net Change

Dr. (Cr.) Explanation

Cash ?

Accounts receivable 15 h. sales exceeded cash

collections

Land 200 g. note was exchanged for land,

a noncash activity

Plant and equipment 60 f. purchase

Accumulated depreciation (25) b. depreciation expense

Investments 0 no change given

Current liabilities 20 i. decrease

Long-term note payable (200) g. note was exchanged for land,

a noncash activity

Bonds payable 100 e bonds retired

Common stock (50) d. common stock issued

Retained earnings (10) c. dividends of 40

a. income of (50)

Total without cash 110 Dr.

Thus, the change in cash must be a 110 Cr. (decrease) to balance the total changes in the accounts.

Statement of cash flows:

POODLE COMPANY

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2010

(IN THOUSANDS OF DOLLARS)

Cash Flows from Operating Activities