Problem - Satellite 2010 was founded in 2010 to apply a new technology for efficiently transmitting closed-circuit (cable) television signals without the need for an in-ground cable. The company earned a profit of $115,000 in 2010, its first year of operations, even though it was serving only a small test market. In 2011, the company began dramatically expanding its customer base. Management expects both sales and net income to more than triple in each of the next five years.
Comparative balance sheets at the end of 2010 and 2011, the company's first two years of operations, follow. (Notice that the balances at the end of the current year appear in the right-hand column.)
Additional Information
The following information regarding the company's operations in 2011 is available in either the company's income statement or its accounting records:
1. Net income for the year was $440,000. The company has never paid a dividend.
2. Depreciation for the year amounted to $147,000.
3. During the year the company purchased plant assets costing $2,200,000, for which it paid $1,850,000 in cash and financed $350,000 by issuing a long-term note payable. (Much of the cash used in these purchases was provided by short-term borrowing, as described below.)
4. In 2011, Satellite 2010 borrowed $1,450,000 against a $6 million line of credit with a local bank. In its balance sheet, the resulting obligations are reported as notes payable (short-term).
5. Additional shares of capital stock (no par value) were issued to investors for $500,000 cash.
|
SATELLITE 2010
COMPARATIVE BALANCE SHEETS
|
|
December 31,
|
|
2010
|
2011
|
|
Assets
|
|
|
|
Cash and cash equivalents
|
$80,000
|
$37,000
|
|
Accounts receivable
|
100,000
|
850,000
|
|
Plant and equipment (net of accumulated depreciation)
|
600,000
|
2,653,000
|
|
Totals
|
$780,000
|
$3,540,000
|
|
Liabilities & Stockholders' Equity
|
|
|
|
Notes payable (short-term)
|
$- 0 -
|
$1,450,000
|
|
Accounts payable
|
30,000
|
63,000
|
|
Accrued expenses payable
|
45,000
|
32,000
|
|
Notes payable (long-term)
|
390,000
|
740,000
|
|
Capital stock (no par value)
|
200,000
|
700,000
|
|
Retained earnings
|
115,000
|
555,000
|
|
Totals
|
$780,000
|
$3,540,000
|
Instructions
a. Prepare a worksheet for a statement of cash flows.
b. Prepare a statement of cash flows for 2011 by the indirect method.