ACG 2021 Lecture Notes - Lecture 16: Trial Balance, General Ledger, Retained Earnings
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Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)
Peoria Corp. just completed another successful year, as indicated by the following income statement:
For the Year Ended December 31, 2017 | |
Sales revenue | $1,250,000 |
Cost of goods sold | 700,000 |
Gross profit | $550,000 |
Operating expenses | 150,000 |
Income before interest and taxes | $400,000 |
Interest expense | 25,000 |
Income before taxes | $375,000 |
Income tax expense | 150,000 |
Net income | $225,000 |
Presented here are comparative balance sheets:
December 31 | |||
2017 | 2016 | ||
Cash | $52,000 | $90,000 | |
Accounts receivable | 180,000 | 130,000 | |
Inventory | 230,000 | 200,000 | |
Prepayments | 15,000 | 25,000 | |
Total current assets | $477,000 | $445,000 | |
Land | $750,000 | $600,000 | |
Plant and equipment | 700,000 | 500,000 | |
Accumulated depreciation | (250,000) | (200,000) | |
Total long-term assets | $1,200,000 | $900,000 | |
Total assets | $1,677,000 | $1,345,000 | |
Accounts payable | $130,000 | $148,000 | |
Other accrued liabilities | 68,000 | 63,000 | |
Income taxes payable | 90,000 | 110,000 | |
Total current liabilities | $288,000 | $321,000 | |
Long-term bank loan payable | $350,000 | $300,000 | |
Common stock | $550,000 | $400,000 | |
Retained earnings | 489,000 | 324,000 | |
Total stockholders' equity | $1,039,000 | $724,000 | |
Total liabilities and stockholders' equity | $1,677,000 | $1,345,000 |
Other information is as follows:
Dividends of $60,000 were declared and paid during the year.
Operating expenses include $50,000 of depreciation.
Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
Balances | Cash Inflows (Outflows) | |||||
Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
Cash | $ | $ | $ | $ | $ | $ |
Accounts Receivable | ||||||
Inventory | ||||||
Prepayments | ||||||
Land | ||||||
Plant and Equipment | ||||||
Accumulated Depreciation | ||||||
Accounts Payable | ||||||
Other Accrued Liabilities | ||||||
Income Taxes Payable | ||||||
Long-Term Bank Loan Payable | ||||||
Common Stock | ||||||
Retained Earnings | ||||||
Net Income | ||||||
Totals | $ | $ | $ | $ | $ | $ |
Net increase (decrease) in cash | $ |
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
Peoria Corp. | |
Statement of Cash Flows | |
For the Year Ended December 31, 2017 | |
Cash Flows from Operating Activities | |
$ | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
$ | |
Cash Flows from Investing Activities | |
$ | |
$ | |
Cash Flows from Financing Activities | |
$ | |
$ | |
$ | |
Cash balance, December 31, 2016 | |
Cash balance, December 31, 2017 | $ |
3. During the year Peoria experienced a decrease in cash at the end of the year due to
Statement of Cash Flows (Indirect Method) The Towne Companyâs income statement and comparative balance sheets as of December 31 of 2016 and 2015 follow:
TOWNE COMPANY Income Statement For the Year Ended December 31, 2016 | ||
---|---|---|
Service Fees Earned | $317,000 | |
Dividend and Interest Income | 14,000 | |
$331,000 | ||
Wages and Other Operating Expenses | $285,000 | |
Depreciation Expense | 55,000 | |
Franchise Amortization Expense | 10,000 | |
Loss on Sale of Equipment | 7,000 | |
Gain on Sale of Investments | (17,000) | 340,000 |
Net Loss | $(9,000) |
TOWNE COMPANY Balance Sheets | ||
---|---|---|
Dec. 31, 2016 | Dec. 31, 2015 | |
Assets | ||
Cash | $43,000 | $33,000 |
Accounts Receivable | 13,000 | 18,000 |
Interest Receivable | - | 4,000 |
Prepaid Expenses | 16,000 | 10,000 |
Long-term InvestmentsâAvailable for Sale | - | 70,000 |
Fair Value Adjustment to Investments | - | 10,000 |
Plant Assets | 696,000 | 655,000 |
Accumulated Depreciation | (237,000) | (185,000) |
Franchise | 91,000 | 29,000 |
Total Assets | $622,000 | $644,000 |
Liabilities and Stockholdersâ Equity | ||
Accrued Liabilities | $12,000 | $14,000 |
Notes Payable | - | 26,000 |
Common Stock ($10 par value) | 595,000 | 535,000 |
Retained Earnings | 35,000 | 59,000 |
Unrealized Gain on Investments | - | 10,000 |
Treasury Stock | (20,000) | - |
Total Liabilities and Stockholdersâ Equity | $622,000 | $644,000 |
During the year, the following transactions occurred:
1. Sold equipment for $9,000 cash that originally cost $19,000 and had $3,000 accumulated depreciation.
2. Sold longâterm investments that had cost $70,000 for $87,000 cash. Unrealized gains totaling $10,000 related to these investments had been recorded in earlier years. At yearâend, the fair value adjustment and unrealized gain account balances were eliminated.
3. Paid cash to extend the companyâs exclusive franchise for another three years.
4. Paid off a note payable at the bank on January 1.
5. Declared and paid a $15,000 dividend.
6. Purchased treasury stock for cash.
7. Acquired land valued at $60,000 by issuing 6,000 shares of common stock.
Required
a. Compute the change in cash that occurred in 2016.
b. Prepare a statement of cash flows using the indirect method.
a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease
b. Use a negative sign with cash outflow answers.
TOWNE COMPANY Statement of Cash Flows For Year Ended December 31, 2016 | ||
---|---|---|
Cash Flow from Operating Activities | ||
Net Loss | $Answer | |
Add (deduct) items to convert net income to cash basis | ||
Depreciation | Answer | |
Franchise Amortization | Answer | |
Loss on Sale of Equipment | Answer | |
Gain on Sale of Investments | Answer | |
Accounts Receivable | AnswerIncreaseDecrease | Answer |
Interest Receivable | AnswerIncreaseDecrease | Answer |
Prepaid Expenses | AnswerIncreaseDecrease | Answer |
Accrued Liabilities | AnswerIncreaseDecrease | Answer |
Cash Provided by Operating Activities | Answer | |
Cash Flow from Investing Activities | ||
Sale of Equipment | Answer | |
Sale of Investments | Answer | |
Extension of Franchise | Answer | |
Cash Provided by Investing Activities | Answer | |
Cash Flow from Financing Activities | ||
Payment of Notes Payable | Answer | |
Payment of Dividends | Answer | |
Purchase of Treasury Stock | Answer | |
Cash Used by Financing Activities | Answer | |
Net in Cash AnswerIncreaseDecrease | Answer | |
Cash at Beginning of Year | Answer | |
Cash at End of Year | $Answer |
Spreadsheet and Statement of Cash Flows
The following information was taken from Lamberson Company's accounting records:
Account Balances | ||
Account Titles | January 1, 2016 | December 31, 2016 |
Debits | ||
---|---|---|
Cash | $ 1,400 | $ 2,400 |
Accounts Receivable (net) | 2,800 | 2,690 |
Marketable Securities (at cost) | 1,700 | 3,000 |
Allowance for Change in Value | 500 | 800 |
Inventories | 8,100 | 7,910 |
Prepaid Items | 1,300 | 1,710 |
Investments (long-term) | 7,000 | 5,400 |
Land | 15,000 | 15,000 |
Buildings and Equipment | 32,000 | 46,200 |
Discount on Bonds Payable | â | 290 |
$69,800 | $85,400 | |
Credits | ||
Accumulated Depreciation | $16,000 | $16,400 |
Accounts Payable | 3,800 | 4,150 |
Income Taxes Payable | 2,400 | 2,504 |
Wages Payable | 1,100 | 650 |
Interest Payable | â | 400 |
Note Payable (long-term) | 3,500 | â |
12% Bonds Payable | â | 10,000 |
Deferred Taxes Payable | 800 | 1,196 |
Convertible Preferred Stock, $100 par | 9,000 | â |
Common Stock, $10 par | 14,000 | 21,500 |
Additional Paid-in Capital | 8,700 | 13,700 |
Unrealized Increase in Value of Marketable Securities | 500 | 800 |
Retained Earnings | 10,000 | 14,100 |
$69,800 | $85,400 |
Additional information for the year:
Sales | $ 39,930 | |
Cost of goods sold | (19,890) | |
Depreciation expense | (2,100) | |
Wages expense | (11,000) | |
Other operating expenses | (1,000) | |
Bond interest expense | (410) | |
Dividend revenue | 820 | |
Gain on sale of investments | 700 | |
Loss on sale of equipment | (200) | |
Income tax expense | (2,050) | |
Net income | $ 4,800 |
Dividends declared and paid totaled $700.
On January 1, 2016, convertible preferred stock that had originally been issued at par value were converted into 500 shares of common stock. The book value method was used to account for the conversion.
Long-term nonmarketable investments that cost $1,600 were sold for $2,300.
The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the year.
Equipment with a cost of $2,000 and a book value of $300 was sold for $100. The company uses one Accumulated Depreciation account for all depreciable assets.
Equipment was purchased at a cost of $16,200.
The 12% bonds payable were issued on August 31, 2016, at 97. They mature on August 31, 2026. The company uses the straight-line method to amortize the discount.
Taxable income was less than pretax accounting income, resulting in a $396 increase in deferred taxes payable.
Short-term marketable securities were purchased at a cost of $1,300. The portfolio was increased by $300 to a $3,800 fair value at year-end by adjusting the related allowance account.
Prepare the statement of cash flows.
LAMBERSON COMPANY Statement of Cash Flows For Year Ended December 31, 2016 |
---|
Operating Activities:
Prepare the statement of cash flows.
___________________ ____________
Adjustment for noncash income items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Adjustments for cash flow effects from working capital items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash provided by operating activities ______________
Investing Activities:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash used for investing activities ____________
Financing Activities:
___________________ ____________
___________________ ____________
Net cash provided by financing activites ____________
Cash, january 1, 2016 _____________
Cash, december 31, 2016 ____________
Compute the cash flow from operations to sales ratio and the profit margin ratio for 2016. Round your answers to one decimal place.
Cash flows from operations ratio ________:%
Profit margin:___________ %