SOLUTION TO EXERCISE 13-7 - Problem Solving Survival Guide to ... - Free Printable

Problem Overview:

The task involves reconciling the balance sheet accounts and preparing a statement of cash flows for Jennifer and Dana Designs Inc. for the year ended December 31, 2014. The provided data includes the beginning and ending balances of various accounts, along with reconciling items (debits and credits). The goal is to determine the missing values in the reconciliation process and verify the cash flow effects.

Step-by-Step Solution:

#### 1. Reconciling Balance Sheet Accounts:
We need to reconcile each account from the beginning balance to the ending balance using the provided debits and credits.

##### (a) Cash:
- Beginning balance: $47,250
- Debit: $51,450
- Ending balance: $98,700

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Debit}
\]
\[
98,700 = 47,250 + 51,450
\]
This is correct.

##### (b) Accounts Receivable:
- Beginning balance: $56,000
- Credit: $31,800
- Ending balance: $67,800

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} - \text{Credit}
\]
\[
67,800 = 56,000 + (a)
\]
Solving for \( (a) \):
\[
(a) = 67,800 - 56,000 = 11,800
\]

##### (c) Inventories:
- Beginning balance: $103,650
- Debit: $18,250
- Ending balance: $121,900

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Debit}
\]
\[
121,900 = 103,650 + 18,250
\]
This is correct.

##### (d) Investments:
- Beginning balance: $87,000
- Debit: $5,500
- Ending balance: $81,500

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} - \text{Debit}
\]
\[
81,500 = 87,000 - 5,500
\]
This is correct.

##### (e) Plant Assets:
- Beginning balance: $205,000
- Debit: $92,000
- Credit: $47,000
- Ending balance: $250,000

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Debit} - \text{Credit}
\]
\[
250,000 = 205,000 + 92,000 - 47,000
\]
This is correct.

##### (f) Accounts Payable:
- Beginning balance: $48,290
- Debit: $9,420
- Ending balance: $57,700

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Debit}
\]
\[
57,700 = 48,290 + (c)
\]
Solving for \( (c) \):
\[
(c) = 57,700 - 48,290 = 9,420
\]

##### (g) Accrued Expenses Payable:
- Beginning balance: $18,630
- Credit: $6,730
- Ending balance: $12,100

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} - \text{Credit}
\]
\[
12,100 = 18,630 - (d)
\]
Solving for \( (d) \):
\[
(d) = 18,630 - 12,100 = 6,730
\]

##### (h) Bonds Payable:
- Beginning balance: $60,000
- Credit: $20,000
- Ending balance: $100,000

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Credit}
\]
\[
100,000 = 60,000 + (i)
\]
Solving for \( (i) \):
\[
(i) = 100,000 - 60,000 = 40,000
\]

##### (i) Accumulated Depreciation—Plant Assets:
- Beginning balance: $40,000
- Credit: $49,700
- Ending balance: $49,500

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Credit}
\]
\[
49,500 = 40,000 + (g)
\]
Solving for \( (g) \):
\[
(g) = 49,500 - 40,000 = 9,500
\]

##### (j) Common Stock:
- Beginning balance: $200,000
- Credit: $50,000
- Ending balance: $250,000

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Credit}
\]
\[
250,000 = 200,000 + (j)
\]
Solving for \( (j) \):
\[
(j) = 250,000 - 200,000 = 50,000
\]

##### (k) Retained Earnings:
- Beginning balance: $111,790
- Credit: $88,400
- Ending balance: $170,600

Reconciliation:
\[
\text{Ending balance} = \text{Beginning balance} + \text{Credit}
\]
\[
170,600 = 111,790 + (k)
\]
Solving for \( (k) \):
\[
(k) = 170,600 - 111,790 = 58,810
\]

#### 2. Statement of Cash Flows:
We now use the reconciling items to prepare the statement of cash flows.

##### Operating Activities:
1. Net income: $147,210
2. Increase in accounts receivable: $(31,800)
3. Increase in inventories: $(18,250)
4. Increase in accounts payable: $9,420
5. Decrease in accrued expenses payable: $(6,730)
6. Depreciation expense: $49,700
7. Gain on sale of plant assets: $(8,750)

Net cash flow from operating activities:
\[
147,210 - 31,800 - 18,250 + 9,420 - 6,730 + 49,700 - 8,750 = 140,800
\]

##### Investing Activities:
1. Sale of investments: $5,500
2. Sale of plant assets: $15,550
3. Purchase of plant assets: $(92,000)

Net cash flow from investing activities:
\[
5,500 + 15,550 - 92,000 = -70,950
\]

##### Financing Activities:
1. Sale of common stock: $50,000
2. Issuance of bonds: $20,000
3. Payment of dividends: $(88,400)

Net cash flow from financing activities:
\[
50,000 + 20,000 - 88,400 = -18,400
\]

##### Net Increase in Cash:
\[
\text{Net increase in cash} = \text{Operating} + \text{Investing} + \text{Financing}
\]
\[
140,800 - 70,950 - 18,400 = 51,450
\]

#### Final Answer:
The missing values are:
\[
\boxed{11,800, 9,420, 6,730, 40,000, 9,500, 50,000, 58,810}
\]