MGAB01H3 Lecture Notes - Lecture 2: Promissory Note, Retained Earnings, Bayer

Listed below are account balances (in $millions) taken from therecords of Symphony Stores. All of these are permanent accounts,except the last two that have yet to be closed. The installmentreceivables are current. Symphony uses a perpetual inventorysystem.

What would Symphony report as total assets? Hint: Don t forgetto deduct the contra assets.

What would Symphony report as total shareholders' equity? Hint:You will need to deduct dividends.

Forten Company, a merchandiser, recently completed itscalendar-year 2015 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's incomestatement and balance sheets follow.

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


$ $