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Dimas [21]
3 years ago
6

Comparative balance sheets for Pina Colada Corp. are presented as follows. Pina Colada Corp. Comparative Balance Sheets December

31 Assets 2020 2019 Cash $72,950 $22,400 Accounts receivable 84,350 76,050 Inventory 180,500 188,250 Land 75,450 100,300 Equipment 249,600 199,800 Accumulated depreciation—equipment (66,250 ) (41,250 ) Total $596,600 $545,550 Liabilities and Stockholders’ Equity Accounts payable $33,400 $46,350 Bonds payable 149,200 199,900 Common stock ($1 par) 213,600 164,700 Retained earnings 200,400 134,600 Total $596,600 $545,550 Additional information: 1. Net income for 2020 was $134,100. 2. Cash dividends of $68,300 were declared and paid. 3. Bonds payable amounting to $50,700 were redeemed for cash $50,700. 4. Common stock was issued for $48,900 cash. 5. Depreciation expense was $25,000. 6. Sales revenue for the year was $977,800. 7. Land was sold at cost, and equipment was purchased for cash. Prepare a worksheet for a statement of cash flows for 2020 using the indirect method. Enter the reconciling items directly on the worksheet.
Business
1 answer:
DerKrebs [107]3 years ago
7 0

Answer and Explanation:

The Preparation of cash flows for 2020 using the indirect method is shown below:-

Cash flow from Operating Activities

Net income $134,100

Add: Adjustments to reconcile   net income

Add; Depreciation on property, plant  and equipment $25,000  ($66,250 - $41,250)

Less: Increase in Accounts receivable ($8,300)    ($84,350 - $76,050)

Add: Decrease in Inventory $7,750   ($180,500 - $188,250)

Less: Decrease in Accounts payable ($12,950)    ($33,400 - $46,350)

Net cash provided by  Operating Activities   $145,600

Cash flow from Investing Activities

Add:Sale of Land $24,850

Less: Purchase of equipment ($49,800)    ($249,600 - $199,800)

Net cash used in Investing Activities ($24,950)

Cash flow from Financing Activities

Issue of common stock $48,900

Less: Redemption of bonds ($50,700)

Less: Dividend paid ($68,300)

Net cash used in Financing Activities ($70,100)

Net increase in Cash and Cash Equivalents $50,550

Cash in the beginning of the period $22,400

Ending cash balance for the year $72,950

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The applicable formula is;
A = P(1-r)^n

Where;
A = Final purchasing power
P = Current purchasing power
r = inflation
n = Number of years when P changes to A

Confirming the first claim:
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r = 7% = 0.07
n = 10.25 years

Using the formula;
A = 3(1-0.07)^10.25 = 3(0.475) ≈ 3(0.5) = $1.5
And therefore, A = 1/2P after 10.25 years.

Now, give;
P = $9
A = 1/4P = $9/4 = $2.25
r = 6.5% = 0.065
n = ? (nearest year).

Substituting;
2.25 = 9(1-0.065)^n
2.25/9 = (1-0.065)^n
0.25 = (1-0.065)^n
ln (0.25)= n ln(1-0.065)
-1.3863 = -0.0672n
n = (-1.3863)/(-0.0672) = 20.63 years

To nearest year;
n = 21 years

Therefore, it would take approximately 21 years fro purchasing power to reduce by 4. That is, from $9 to $2.25.
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