Financial Accounting Volume 1 2009 Edition Author: Conrado T. Valix Jose T. Peralta Christian Aris M. Valix Balance Sheet: PAGE 121 PROBLEM 2-1 (IAA)
1. The following account balances are available from the records of Easy Company at December 31, 2009. Accounts Payable Accounts Receivable Property, Plant and Equipment Accumulated Depreciation Depreciatio n Mortgage payable, due in 5 years Share capital, P100 par Share premium Cash and Cash Equivalent Accrued Expenses Inventories Long term investments Note payable, long term debt Note payable, short term debt Office supplies Patent Prepaid rent Retained earnings
350,000 450,000 3,675,000 1,200,000 1,500,000 2,075,000 500,000 800,000 100,000 900,000 950,000 500,000 200,000 50,000 450,000 150,000 1,350,000
Required: Prepare balance sheet statement 1925000 Answer: Easy Company Balance Sheet Statement December 31, 2009 Assets:
Cash
950,000
Accounts receivable
450,000
Inventories Prepaid rent Office supplies
900,000 150,000 50,000
Patent
450,000
Property, Plant and equipment
3,675,000
Accumulated depreciation Total assets
1,200,000 7,825,000
Liabilities & Stockholder’s Equity:
Accounts payable Mortgage payable due in 5 years Accrued expenses
350,000 1,500,000 100,000
Note payable, long term debt Note payable, short term debt
500,000 200,000
Long term investments
950,000
Share Capital P100 par
2,075,000
Share premium Retained earnings
800,000 1,350,000
Total liabilities and stock holder’s equity
7,825,000
Income Statement:
Walter B. Meigs & Robert F. Meigs Financial Accounting Revised Fifth Edition 1. Balance sheet
The accounting data (listed alphabetically) for Crystal Auto Wash as of August 31, 19__, are shown below. The figure for cash is not given but it can be determined when all the avail info is assembled in the form of a balance sheet. Accounts payable Accounts receivables Buildings Capital stock Cash Income tax payable Land Machinery & Equipment Notes payable Retained earnings Supplies
$ 9,000 800 60,000 50,000 ? 3,000 40,000 85,000 29,000 99,400 400
On September 1, the following transactions occurred: 1.) Additional capital stock was issued for $15,000 cash. 2.) The accounts payables of $9,000 were paid in full. ( No payment was made on the notes payable.) 3.) One quarter of the land was sold and cost, the buyer gave a promissory note for $10,000. (Interest applicable to the note may be ignored.) 4.) Washing supplies were purchased at a cost of $2,000 to be paid for within 10 days. Washing supplies were also purchased for $600 cash from another car washing concern which was going out of business. These supplies would have cost $1,000 if purchased through regular channels. Required:
a.) Prepare a balance sheet for Aug. 31, 19__. b.) Prepare a balance sheet for Sept. 1, 19__. Answer: Crystal Auto Wash Balance Sheet August 31, 19__
Assets: Cash Accounts receivable Supplies Land Building Machinery & Equipment Total Assets
$4,200 800 400 40,000 60,000 85,000 190,400
Liabilities: Notes payable Accounts payable Income tax payable Stock holder’s Equity: Capital stock Retained earnings Total Liabilities & Stock holder’s equity
29,000 9,000 3,000 41,000 50,000 99,400 190,400
Crystal Auto Wash Balance Sheet September 1, 19__ Assets: Cash Accounts receivable Supplies Land Building Machinery & Equipment Notes Receivable Total Assets
$9,600 3,000 800 30,000 60,000 85,000
Liabilities: Notes payable Accounts payable Income tax payable Capital stock Retained earnings Total Liabilities & Stock holder’s equity
29,000 2,000 3,000 65,000 99,400 198,400
10,000 198,400
Cash Flow Statement
1.) Charlotte Company’s net income last year was $91,000. Changes in the company’s balance sheet accounts for the year appear below: Cash
($13,000)
Accounts Receivable
16,000
Inventory
21,000
Prepaid Expense Long term investments
(8,000) 30,000
Property, plant & equipment 60,000 Accumulated depreciation
36,000
Accounts payable
(21,000)
Accrued expenses
14,000
Income tax payable
42,000
Bonds payable
(50,000)
Common stock
20,000
Retained earnings
65,000
The company did not dispose of any property, plant and equipment, sell any long term investments, issue any bonds payable, or repurchase of its own common stock during
the year. The company declared and paid a cash dividend. The beginning and ending cash balances were $20,000 and $7,000 respectively. Required: Prepares a statement of cash flows using indirect method. Answer: Operating activities: Net income
$91,500
Adjustments for non-cash effects: Depreciation expense
36,000
Adjustments for changes in current assets and liabilities: Increase in accounts receivable
(16,000)
Increase in inventories Decrease in prepaid expense
(21,000) 8,000
Decrease in accounts payable
(21,000)
Increase accrued liabilities
14,000
Increase in income taxes payable
42,000__
Net cash flows from operating activities
133,000
Investing activities: Purchase of long term investments
(30,000)
Purchase of property, plant & equipment
(60,000)__
Net cash flows from investing activities
(90,000)
Financing activities: Retirement of bonds payable
($50,000)
Cash dividends paid
(26,000)
Issuance of common stock
20,000__
Net cash flows from financing activities
(56,000)__
Net change in cash
($13,000)
Beginning cash balance Ending cash balance
20,000__ $7,000
2.) CASH FLOW STATEMENT
Arcade corporation’s balance sheet and income statement appear below: Income statement Sales
$723
Cost of goods sold
453__
Gross margin
270
Selling and administrative expenses
163__
Income before income taxes
107
Income tax expense
32__
Net income
$75 Balance sheet
Cash
Ending balance $42
Beginning balance $36
Accounts receivable
77
80
Inventories
54
58
Plant and equipment
581
480
Less: accumulated depreciation
(318)__
(294)__
Total assets
$436
$360
Accounts payable
$23
$28
Bonds payable
293
270
Common stock
61
60
Retained earnings
59__
2____
Total liabilities and equity
$436
$360
The company did not dispose of any property, plant, and equipment, retire any bonds payable, or repurchase any of its own common stock during the year. The company declared and paid a cash dividend. Required: prepare a statement of cash flows using the indirect method.
Answer: Operating activities: Net income
$75
Adjustments for non-cash effects: Depreciation expense
$25
Adjustments for changes in current assets and liabilities: Decrease in accounts receivable
3
Decrease in inventories
4
Decrease in accounts payable
(5)__
Net cash flows from operating activities
2 101
Investing activities: Purchase of property, plant and equipment Net cash flows from investing activities
(101)__ (101)
Financing activities: Cash dividends paid
(18)
Issuance of bonds
23
Issuance of common stock Net cash flows from financing activities
1__ 6___
Net change in cash
6
Beginning cash balance
36__
Ending cash balance
$42
1.) INCOME STATEMENT
In 2003, Burghoff, Inc. (a hardware retail company) sold 10,000 units of its product at an average price of $400 per unit. The company reported estimated Returns and allowances in 2003 of $200,000. Burghoff actually purchased 11,000 units of its product from its manufacturer in 2003 at an average cost of $300 per unit. Burghoff began 2003 with 900 units of its product in inventory (carried at an average cost of $300 per unit). Operating expenses (excluding depreciation) for Burghoff, Inc. in 2003 were $400,000 and depreciation expense was $100,000. Burghoff had $2,000,000 in debt outstanding throughout all of 2003. This debt carried an average interest rate of 10 percent. Finally, Burghoff’s tax rate was 40 percent. Burghoff’s fiscal year runs from January 1 through December 31. Given this information, construct Burghoff’s 2003 multi-step income statement.
Burghoff Inc. Income Statement th
For the 12 month period ending December 31, 2003 Net Sales Cost of Goods Sold Gross Profit Operating Expenses(excl. depreciation) Depreciation expense Operating income Interest expense EBT Taxes Net income
$3,800,000 3,000,000 800,000 400,000 100,000 300,000 200,000 100,000 40,000 60,000
*Notes: Net sales = Gross sales – Returns and Allowances = (10,000) ($400) – 200,000.
Cost of goods sold = # units sold x Cost per unit = (10,000) ($300). Interest expense = (Debt outstanding) (Average interest rate) = ($2,000,000) (.10). Taxes = (EBT) (Tax rate) = ($100,000) (.40). 2.) INCOME STATEMENT
Prepare a multi-step income statement for the Appully Company (a clothing retailer) for the year ending December 31, 2003 given the information below:
Advertising expenditures Beginning inventory
68,000 256,000
Depreciation Ending inventory
78,000 248,000
Gross Sales
3,210,000
Interest expense Lease payments
64,000 52,000
Management salaries
240,000
Materials purchases R&D expenditures
2,425,000 35,000
Repairs and maintenance costs Returns and allowances Taxes
22,000 48,000 51,000
Apully Company Income Statement For the 12 month period ending December 31, 2003 Net sales Cost of goods sold
$3, 162,000 2,433,000
Gross profit
729,000
Operating expenses (excluding depreciation) Depreciation
417,000 78,000
Operating profit
234,000
Interest expense
64,000
Earnings before taxes
170,000
Taxes
51,000
Net income
119,000
