ACCT 2001 Lecture Notes - Lecture 6: Life Time Fitness, Profit Margin, Income Statement
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Joyner Companyâs income statement for Year 2 follows:
Sales | $ | 715,000 |
Cost of goods sold | 286,000 | |
Gross margin | 429,000 | |
Selling and administrative expenses | 217,000 | |
Net operating income | 212,000 | |
Nonoperating items: | ||
Gain on sale of equipment | 8,000 | |
Income before taxes | 220,000 | |
Income taxes | 88,000 | |
Net income | $ | 132,000 |
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
Year 2 | Year 1 | ||||
Assets | |||||
Cash | $ | 79,400 | $ | 70,000 | |
Accounts receivable | 265,000 | 144,000 | |||
Inventory | 319,000 | 277,000 | |||
Prepaid expenses | 10,500 | 21,000 | |||
Total current assets | 673,900 | 512,000 | |||
Property, plant, and equipment | 639,000 | 511,000 | |||
Less accumulated depreciation | 166,600 | 132,000 | |||
Net property, plant, and equipment | 472,400 | 379,000 | |||
Loan to Hymans Company | 43,000 | 0 | |||
Total assets | $ | 1,189,300 | $ | 891,000 | |
Liabilities and Stockholders' Equity | |||||
Accounts payable | $ | 316,000 | $ | 266,000 | |
Accrued liabilities | 45,000 | 50,000 | |||
Income taxes payable | 85,400 | 82,000 | |||
Total current liabilities | 446,400 | 398,000 | |||
Bonds payable | 200,000 | 116,000 | |||
Total liabilities | 646,400 | 514,000 | |||
Common stock | 348,000 | 284,000 | |||
Retained earnings | 194,900 | 93,000 | |||
Total stockholders' equity | 542,900 | 377,000 | |||
Total liabilities and stockholders' equity | $ | 1,189,300 | $ | 891,000 | |
Equipment that had cost $31,900 and on which there was accumulated depreciation of $10,000 was sold during Year 2 for $29,900. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock.
Required:
1. Using the indirect method, compute the net cash provided by/used in operating activities for Year 2.
2. Prepare a statement of cash flows for Year 2.
3. Compute the free cash flow for Year 2.
Complete this question by entering your answers in the tabs below.
Required 1
Using the indirect method, compute the net cash provided by/used in operating activities for Year 2. (List any deduction in cash and cash outflows as negative amounts.)
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Required 2
Prepare a statement of cash flows for Year 2. (List any deduction in cash and cash outflows as negative amounts.)
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Required 3
Compute the free cash flow for Year 2. (Negative amount should be indicated by a minus sign.)
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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
Question 1
Identify the item below that is not one of the four different types of data processing activities.
deleting | ||
reading | ||
creating | ||
using |
Question 2
All of the following are advantages of an ERP system except
ERPs permit manufacturing plants to receive new orders in real time. | ||
in an ERP, data input is captured or keyed once. | ||
it takes considerable experience and training to use an ERP system effectively. | ||
ERPs permit management to gain greater visibility into every area of the enterprise. |
Question 3
Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?
relevant | ||
reliable | ||
complete | ||
timely | ||
understandable | ||
verifiable | ||
accessible |
Question 4
An ERP system might facilitate the purchase of direct materials by all of the following except
preparing a purchase order when inventory falls to reorder point. | ||
routing a purchase order to a purchasing agent for approval. | ||
communicating a purchase order to a supplier. | ||
selecting the best supplier by comparing bids. |
Question 5
Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)
entity. | ||
attribute. | ||
field. | ||
record. |
Question 6
Which of the following is not considered a source document?
A copy of the company's shipping document. | ||
A copy of the company's ledger. | ||
A copy of the company's sales journal. | ||
A copy of the company's financial statements. |
Question 7
In an ERP system, the module used to record data about transactions in the disbursement cycle is called
financial. | ||
order to cash. | ||
customer relationship management. | ||
purchase to pay. |
Question 8
Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in
goal conflict. | ||
information overload. | ||
decreased value of information. | ||
goal congruence. |
Question 9
________ are examples of activities that constitute inbound logistics.
Activities that transform inputs into final products or services | ||
Activities that provide post-sale support to customers | ||
Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells | ||
Activities that help customers to buy the organization's products or services |
Question 10
In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?
the revenue cycle | ||
the expenditure cycle | ||
the human resources / payroll cycle | ||
the financing cycle |
Question 11
The collection of customer payment is part of which transaction cycle?
the human resources cycle | ||
the production cycle | ||
the revenue cycle | ||
the expenditure cycle |
Question 12
Which of the following is an example of source data automation?
POS (point-of-sale) scanners in retail stores | ||
a bill of lading | ||
a subsidiary ledger | ||
a utility bill |
Question 13
All of the following are guidelines for developing a good coding system except
be as sophisticated as possible to promote usage. | ||
be consistent with its intended use. | ||
be flexible to allow for growth. | ||
be consistent with the company's organization structure. |
Question 14
What is a key decision that needs to be made with regards to borrowing money from lenders?
the location | ||
pro forma income statement | ||
how much capital to acquire | ||
job descriptions |
Question 15
Identify the false statement below.
A service company does not have an inventory system. | ||
Retail stores do not have a production cycle. | ||
Financial institutions have installment-loan cycles. | ||
Every organization should implement every transaction cycle module. |
Question 16
The chart of accounts of a fast-food restaurant would probably include
a list of customers. | ||
a list of financial statement accounts. | ||
a list of vendors. | ||
a list of employees. |
Question 17
Which statement below regarding the AIS is false?
Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports. | ||
The AIS must be able to provide managers with detailed and operational information about the organization's performance. | ||
Both traditional financial measures and operational data are required for proper and complete evaluation of performance. | ||
The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data. |
Question 18
In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?
well-designed paper forms | ||
turnaround documents | ||
source data automation | ||
sequentially numbered bills |
Question 19
Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of
verifiability. | ||
truthful. | ||
relevance. | ||
reliability. |
Question 20
Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan represents a(n)
entity. | ||
attribute. | ||
field. | ||
record. |