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MGAB01H3 Lecture Notes - Issued Shares, Retained Earnings, Income Statement

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coppertortoise45
19 Apr 2013
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
Douglas Kong

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Document Summary

Transactions: a)the company borrows 1000 from its local bank, signing a note to be paid in two years cash (+a) long term borrowings (+l) 1000 b)for the expansion, nestle opened a new production facility. The company purchased 2200 of equipment paying 1500 in cash and signing a note for 700, payable to the equipment manufacture in two years equipment (+a) cash (-a) 700 c)nestle purchases shares issued by another company as a long term investment, paying 3000 in cash. The number of shares purchased allows nestle to exert significant influence over decisions made by that company investment in associates (+a) cash(-a) 3000 d)nestle"s board of directors declares cash dividends of 200 for shareholders. The dividends are immediately paid retained earnings(-se) cash(-a) 200 pg 119-121 revenues-cost of goods sold=gross profit gross profit-total operating expenses=operating profit operating profit +other revenues and gains=profit before income taxes.

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Related Questions

Kelsey Baker founded GolfDeals.com at the beginning of February. GolfDeals.com sells new and used golf equipment online. The following events occurred in February.

(a) Borrowed $46,000 cash from a bank, signing a note due in three years.

(b) Received investment of cash by organizers and distributed to them 900 shares of $0.10 par value common stock with a market price of $20 per share.

(c) Purchased a warehouse for $147,000, paying $39,000 in cash and signing a note payable for the balance on a 10-year mortgage.

(d)Purchased computer and office equipment for $36,000, paying $6,500 in cash and owing the rest on accounts payable to the manufacturers.

(e)Loaned $1,500 to an employee who signed a note due in three months.

(f) Paid $5,000 to the manufacturers in (d) above.

(g) Purchased short-term investments for $13,000 cash.

Required:

Prepare journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Kazaam Company, a merchandiser, recently completed itscalendar-year 2011 operations. For the year, (1) all sales arecredit sales, (2) all credits to Accounts Receivable reflect cashreceipts from customers, (3) all purchases of inventory are oncredit, (4) all debits to Accounts Payable reflect cash paymentsfor inventory, and (5) Other Expenses are paid in advance and areinitially debited to Prepaid Expenses. The company%u2019s balancesheets and income statement follow.

KAZAAM COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010
2011 2010
Assets
Cash $ 49,200 $ 74,000
Accounts receivable 65,810 55,000
Merchandise inventory 276,000 251,000
Prepaid expenses 1,500 1,900
Equipment 159,000 107,500
Accum. depreciation%u2014Equipment (35,750) (46,000)


Total assets $ 515,760 $ 443,400


Liabilities and Equity
Accounts payable $ 59,835 $ 112,000
Short-term notes payable 10,000 6,000
Long-term notes payable 70,000 49,000
Common stock, $5 par value 162,250 150,250
Paid-in capital in excess of par, common stock 36,000 0
Retained earnings 177,675 126,150


Total liabilities and equity $ 515,760 $ 443,400



KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011
Sales $ 582,500
Cost of goods sold 289,000

Gross profit 293,500
Operating expenses
Depreciationexpense $ 20,000
Otherexpenses 133,600 153,600


Other gains (losses)
Loss on sale ofequipment 5,375

Income before taxes 134,525
Income taxes expense 25,500

Net income $ 109,025


Additional Information on Year 2011 Transactions
a.
The loss on the cash sale of equipment was $5,375 (details inb).
b.
Sold equipment costing $47,250, with accumulated depreciation of$30,250, for $11,625 cash.
c.
Purchased equipment costing $98,750 by paying $35,000 cash andsigning a long-term note payable for the balance.
d.
Borrowed $4,000 cash by signing a short-term note payable.
e.
Paid $42,750 cash to reduce the long-term notes payable.
f.
Issued 2,400 shares of common stock for $20 cash per share.
g. Declared and paid cash dividends of$57,500.

Required:
Prepare a complete statement of cash flows using a spreadsheetreport its operating activities using the indirect method. (Leaveno cells blank - be certain to enter "0" wherever required. Omitthe "$" sign in your response.)

a. Net income was $109,025.
b. Accounts receivable increased.
c. Merchandise inventory increased.
d. Prepaid expenses decreased.
e. Accounts payable decreased.
f. Depreciation expense was $20,000.
g.
Sold equipment costing $47,250, with accumulated depreciation of$30,250, for $11,625 cash. This yielded a loss of $5,375.
h.
Purchased equipment costing $98,750 by paying $35,000 cash and (i.)by signing a long-term note payable for the balance.
j. Borrowed $4,000 cash by signing a short-termnote payable.
k. Paid $42,750 cash to reduce the long-termnotes payable.
l. Issued 2,400 shares of common stock for $20cash per share.
m. Declared and paid cash dividends of$57,500.


KAZAAM COMPANY
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2011
December
31, 2010 Analysis of Changes December
31, 2011

Debit Credit
Balance sheet%u2014debit bal. accounts
Cash $ $ $ $
Accounts receivable
Merchandise inventory
Prepaid expenses
Equipment


$ $


Balance sheet%u2014credit bal. accounts
Accum.depreciation%u2014Equip. $ $
Accounts payable
Short-term notes payable
Long-term notes payable
Common stock, $5 parvalue
Paid-in capital in excess of
par value, commonstock
Retained earnings


$ $


Statement of cash flows
Operating activities
Net income
Increase in accts.receivable
Increase in merch.inventory
Decrease in prepaidexpenses
Decrease in accountspayable
Depreciation expense
Loss on sale ofequipment
Investing activities
Receipt from sale ofequipment
Payment to purchaseequipment
Financing activities
Borrowed on short-termnote
Payment on long-termnote
Issued common stock forcash
Payments of cashdividends
Noncash investing and financing activities
Purchase of equip. financed
by long-term notepayable


$ $

Forten Company, a merchandiser, recently completed its calendar-year 2015 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's income statement and balance sheets follow.

FORTEN COMPANY
Comparative Balance Sheets
December 31, 2015 and 2014
2015 2014
Assets
Cash $ 82,580 $ 73,000
Accounts receivable 65,860 56,000
Inventory 276,500 251,500
Prepaid expenses 1,250 1,700
Total current assets 426,190 382,200
Equipment 156,775 106,500
Accum. depreciation—Equipment (42,375) (52,000)
Total assets $ 540,590 $ 436,700
Liabilities and Equity
Accounts payable $ 95,000 $ 111,000
Short-term notes payable 11,000 7,000
Total current liabilities 106,000 118,000
Long-term notes payable 60,165 48,500
Total liabilities 166,165 166,500
Equity
Common stock, $5 par value 162,000 150,250
Paid-in capital in excess of par, common stock 35,250 0
Retained earnings 177,175 119,950
Total liabilities and equity $ 540,590 $ 436,700

FORTEN COMPANY
Income Statement
For Year Ended December 31, 2015
Sales $ 582,000
Cost of goods sold 290,000
Gross profit 292,000
Operating expenses
Depreciation expense $ 20,000
Other expenses 133,600 153,600
Other gains (losses)
Loss on sale of equipment (5,625)
Income before taxes 132,775
Income taxes expense 24,250
Net income $ 108,525

Additional Information on Year 2015 Transactions
a. The loss on the cash sale of equipment was $5,625 (details in b).
b. Sold equipment costing $48,890, with accumulated depreciation of $29,625, for $13,640 cash.
c. Purchased equipment costing $99,165 by paying $35,000 cash and signing a long-term note payable for the balance.
d. Borrowed $4,000 cash by signing a short-term note payable.
e. Paid $52,500 cash to reduce the long-term notes payable.
f. Issued 2,350 shares of common stock for $20 cash per share.
g.

Declared and paid cash dividends of $51,300.
Required:

Prepare a complete statement of cash flows; report its operating activities according to the direct method.(Amounts to be deducted should be indicated with a minus sign.)