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I am not getting this process and I did what the q/a said but Idon't get it. I put in the answers and I am getting feedback thatit is wrong. Can you help?

Ethics Lesson Discussion ; please write a paragraph or more asto how you would interpret this situation? Is Tripp behaving in anethical and professional manner?

Kelly Tough, president of Tu-Rock Industries Inc., believes thatreporting operating cash flow per share on the income statementwould be a useful addition to the company’s just completedfinancial statements. Please read a transcript of the discussionwhich took place between Kelly Tough and Tu-Rock controller, TrippKelso, in January, after the close of the fiscal year.

Kelly: I have been reviewing our financial statements for the lastyear. I am disappointed that our net income per share has droppedby 10% from last year. This is not going to look good to ourshareholders. Isn’t there anything we can do about this?

Tripp: What do you mean? The past is the past, and the numbers arein. There isn’t much that can be done about it. Our financialstatements were prepared according to generally accepted accountingprinciples, and I don’t see much leeway for significant change atthis point.

Kelly: No, no. I’m not suggesting that we “cook the books.” Butlook at the cash flow from operating activities on the statement ofcash flows.

Kelly: The cash flow from operating activities has increased by20%. This is very good news—and, I might add, useful information.The higher cash flow from operating activities will give ourcreditors comfort.

Tripp: Well, the cash flow from operating activities is on thestatement of cash flows, so I guess users will be able to see theimproved cash flow figures there.

Kelly: This is true, but somehow I feel that this informationshould be given a much higher profile. I don’t like thisinformation being “buried” in the statement of cash flows. You knowas well as I do that many users will focus on the income statement.Therefore, I think we ought to include an operating cash flow pershare number on the face of the income statement—someplace underthe earnings per share number. In this way users will get thecomplete picture of our operating performance. Yes, our earningsper share dropped this year, but our cash flow from operatingactivities improved! And all the information is in one place whereusers can see and compare the figures. What do you think?

Tripp: I’ve never really thought about it like that before. I guesswe could put the operating cash flow per share on the incomestatement, under the earnings per share. Users would really benefitfrom this disclosure. Thanks for the idea—I’ll start working onit.

Kelly: Glad to be of service.

I am including exercise 8.11 because we are torefer to it for the question.


Exercise 8.11 (page239): Hegge Company uses the periodic inventory system. Journalize thefollowing entries for April, assuming Hegge Company uses the grossprice method of recording direct material purchases.



Apr6 Purchased $15,100 in direct materials from Kunzman Wholesale; terms1/15, n/30, FOB shipping point.

Apr9 Paid Carper Transit $250 freight charges on the purchase of April6th.

Apr12 Returned $1,400 gross price of direct materials from the April6th purchase to Kunzman Wholesale because the items werethe wrong model.

Apr30 Paid Kunzman Wholesale the amount due.


Refer to Exercise 8.11. Make the journalentries assuming Hegge uses the perpetual inventory system and thegross price method.

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