ACC 630 Study Guide - Final Guide: Retained Earnings, Impaired Asset
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Positioning of items within cash flow statementâIFRS vs. U.S. GAAP (LO 4-9)
Lend Corp. has a primary business model of borrowing funds at low interest rates and lending
them out at higher interest rates. The balances in Lend Corporationâs balance sheet accounts at
December 31, 2017 are as follows:
Assets | Liabilities | ||
cash | 300,000 | 40,000 | |
land | 300,000 | 800,000 | |
building | 800,000 | ||
Accum depr: Building | 160,000 | Owner's Equity | |
A/R | 20,000 | Retained Earnings | 320,000 |
Notes Rec | 900,000 | Contributed capital | 1,000,000 |
During 2018, Lend Corp. has the following transactions:
â Received $45,000 in cash interest on notes receivable.
â Paid $16,000 of cash interest on notes payable.
â Collected $10,000 cash from accounts receivable.
â Paid $40,000 cash to reduce accounts payable.
â Owes $3,000 at the end of the year to administrative employees for work performed.
â Building depreciation is an additional $20,000.
Required:
1. Compute Lend Corpâs 2018 net income.
2. Show Lend Corpâs 12/31/2018 balance sheet.
3. Report Lend Corpâs 12/31/2018 statement of cash flows using the indirect method under
U.S. GAAP.
4. Report Lend Corpâs 12/31/2018 statement of cash flows using the indirect method under IFRS.
Record cash flows from interest received in the cash flows from investing section. Record cash
flows from interest paid in the cash flows from financing section.
5. Compare your net cash flows from operations computed from requirement 3 vs. require- ment 4.
Which do you think better reflects Lend Corpâs fundamental operating cash flows?
LuluCo reported the following on its 2014 income statement. Using the income statement and the balance sheet given below, prepare the statement of cash flows using the indirect method. Ignore required disclosures for cash flows associated with interest paid and received, dividends paid and received and income taxes as well as any non-cash disclosures that may have occurred in the current year.
Analysis of accounts:
1) Retired bonds, paid $11,500
2) Sold HTM investment in Lala Consulting common shares for $11,500
3) Purchased equipment $57,000 cash
4) Sold furniture, and settled in cash.
5) Purchased HFT investments $3,000 cash. This companyâs HFT investments are not readily convertible to a known amount of cash but will be traded within 12 months.
6) Paid cash dividends
7) Issued common shares, 2,300 shares at $5 per share.
8) Changes in other balance sheet accounts resulted from usual transactions and events
LuluCo | |||
Income Statement | |||
For the year ended December 31, 2014 | |||
Sales | $515,000 | ||
Operating expenses | |||
Cost of goods sold | 257,500 | ||
Depreciation expense | 10,000 | ||
Interest expense | 4,725 | ||
Amortization expense | 19,000 | ||
Other operating expenses | 97,600 | 388,825 | |
Other revenues and expenses | |||
Loss on sale of HTM investments | -1,000 | ||
Net income | $125,175 | ||
LuluCo | |||
Balance Sheet | |||
As of December 31, 2014 | 2014 | 2013 | |
Cash | $16,000 | $31,500 | |
Investments (held for trading | 61,000 | 58,000 | |
Accounts receivable, net | 72,500 | 89,000 | |
Inventory | 69,500 | 82,000 | |
HTM investments | 43,000 | 55,500 | |
Property, plant, equipment, net | 117,000 | 120,000 | |
Patent, net | 34,000 | 53,000 | |
Total assets | $413,000 | $489,000 | |
Accounts payable | $68,500 | $78,000 | |
Salaries payable | 53,500 | 43,000 | |
Short-term notes payable | 122,000 | 139,500 | |
Bonds payable | 83,000 | 94,500 | |
Common shares | 39,000 | 27,500 | |
Retained earnings | 47,000 | 106,500 | |
Total liabilities and shareholders' equity | $413,000 | $489,000 | |