ACCT 201 Lecture 2: Chapter 2 Notes
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Uhura Company has decided to expand its operations. Thebookkeeper recently completed the balance sheet presented below inorder to obtain additional funds for expansion.
UHURA COMPANY | ||
Current assets | ||
Cash | $232,650 | |
Accounts receivable (net) | 342,650 | |
Inventory (lower-of-average-cost-or-market) | 403,650 | |
Equity investments (trading)-at cost (fair value$123,310) | 143,310 | |
Property, plant, and equipment | ||
Buildings (net) | 573,310 | |
Equipment (net) | 163,310 | |
Land held for future use | 178,310 | |
Intangible assets | ||
Goodwill | 82,650 | |
Cash surrender value of life insurance | 92,650 | |
Prepaid expenses | 14,650 | |
Current liabilities | ||
Accounts payable | 138,310 | |
Notes payable (due next year) | 127,650 | |
Pension obligation | 85,310 | |
Rent payable | 51,650 | |
Premium on bonds payable | 55,650 | |
Long-term liabilities | ||
Bonds payable | 503,310 | |
Stockholders’ equity | ||
Common stock, $1.00 par, authorized 400,000 shares,issued 292,650 | 292,650 | |
Additional paid-in capital | 162,650 | |
Retained earnings | ? |
Prepare a revised balance sheet given the available information.Assume that the accumulated depreciation balance for the buildingsis $162,650 and for the equipment, $107,650. The allowance fordoubtful accounts has a balance of $19,650. The pension obligationis considered a long-term liability.
1. The net income reported on the income statement for thecurrent year was $288,417. Depreciation recorded on fixed assetsand amortization of patents for the year were $41,876, and $11,524,respectively. Balances of current asset and current liabilityaccounts at the end and at the beginning of the year are asfollows:
End | Beginning | |
Cash | $46,710 | $55,173 |
Accounts receivable | 100,038 | 129,780 |
Inventories | 87,496 | 101,142 |
Prepaid expenses | 7,305 | 4,393 |
Accounts payable (merchandise creditors) | 62,403 | 55,238 |
What is the amount of cash flows from operating activitiesreported on the statement of cash flows prepared by the indirectmethod?
a. $315,644
b. $389,458
c. $276,574
d. $385,205
2.
Determine the relationship of $219,652 to $115,020, expressed asa ratio.
Select the correct answer.
a. 1.9 to 1
b. 1.1 to 1
c. 0.5 to 1
d. 0.7 to 1
3.
Based on the following data for Privett Company, what is thequick ratio, rounded to one decimal point?
Privett Company | |
Accounts payable | $33,191 |
Accounts receivable | 68,636 |
Accrued liabilities | 6,715 |
Cash | 23,006 |
Intangible assets | 35,944 |
Inventory | 88,660 |
Long-term investments | 99,015 |
Long-term liabilities | 71,468 |
Marketable securities | 38,057 |
Notes payable (short-term) | 23,392 |
Property, plant, and equipment | 691,785 |
Prepaid expenses | 1,629 |
a. 16.5
b. 1
c. 2
d. 3.5
4.
The balance sheets at the end of each of the first two years ofoperations indicate the following:
Kellman Company | ||
Year 2 | Year 1 | |
Total current assets | $618,015 | $564,556 |
Total investments | 60,948 | 41,643 |
Total property, plant, and equipment | 882,682 | 618,461 |
Total current liabilities | 101,282 | 83,040 |
Total long-term liabilities | 302,446 | 237,252 |
Preferred 9% stock, $100 par | 84,252 | 84,252 |
Common stock, $10 par | 521,610 | 521,610 |
Paid-in capital in excess of par-common stock | 65,163 | 65,163 |
Retained earnings | 486,892 | 233,343 |
Using the balance sheets for Kellman Company, if net income is$113,275 and interest expense is $33,061 for Year 2, what is thereturn on total assets for the year (round percent to two decimalpoints)?
a. 9.25%
b. 10.50%
c. 7.25%
d. 10.99%
Comparative financial statement data for Carmono Company follow: |
This Year | Last Year | |||
Assets | ||||
Cash | $ | 7.50 | $ | 14.00 |
Accounts receivable | 50.00 | 43.00 | ||
Inventory | 92.50 | 79.20 | ||
Total current assets | 150.00 | 136.20 | ||
Property, plant, and equipment | 231.00 | 194.00 | ||
Less accumulated depreciation | 45.60 | 34.20 | ||
Net property, plant, and equipment | 185.40 | 159.80 | ||
Total assets | $ | 335.40 | $ | 296.00 |
Liabilities and Stockholders’ Equity | ||||
Accounts payable | $ | 55.50 | $ | 46.00 |
Common stock | 118.00 | 91.00 | ||
Retained earnings | 161.90 | 159.00 | ||
Total liabilities and stockholders’ equity | $ | 335.40 | $ | 296.00 |
For this year, the company reported net income as follows: |
Sales | $ | 850.00 |
Cost of goods sold | 510.00 | |
Gross margin | 340.00 | |
Selling and administrative expenses | 320.00 | |
Net income | $ | 20.00 |
This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year. Carmono CompanyStatement of Cash Flows - Indirect MethodFor This Year Ended December 31Operating activities:Net income$20.00Adjustments to convert net income to a cash basis:Depreciation$11.40Increase in accounts receivable(7.00)Increase in inventory(13.30)Increase in accounts payable9.500.60Net cash provided by operating activities20.60Investing activities:Increase in plant and equipment(37.00)Net cash used in investing activities(37.00)Financing activities:Increase in common stock27.00Cash dividends(17.10)Net cash provided by financing activities9.90Net decrease in cash(6.50)Beginning cash and cash equivalents14.00Ending cash and cash equivalents$7.50 |
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2. | Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) |
Free cash flow$
3.
Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below: |
Item | Amount | ||
Accounts receivable | $ | 79,000 | decrease |
Inventory | $ | 120,000 | increase |
Prepaid expenses | $ | 3,500 | decrease |
Accounts payable | $ | 41,000 | decrease |
Accrued liabilities | $ | 9,600 | increase |
Income taxes payable | $ | 15,700 | increase |
Sale of equipment | $ | 8,100 | gain |
Sale of long-term investments | $ | 12,200 | loss |
Required: |
For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year. |
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4.
Apex Company prepared the statement of cash flows for the current year that is shown below: |
Apex Company Statement of Cash Flows—Indirect Method | ||||
Operating activities: | ||||
Net income | $ | 41,500 | ||
Adjustments to convert net income to cash basis: | ||||
Depreciation | $ | 20,100 | ||
Increase in accounts receivable | (61,500) | |||
Increase in inventory | (25,100) | |||
Decrease in prepaid expenses | 9,400 | |||
Increase in accounts payable | 54,300 | |||
Decrease in accrued liabilities | (10,100) | |||
Increase in income taxes payable | 3,300 | (9,600) | ||
Net cash provided by operating activities | 31,900 | |||
Investing activities: | ||||
Proceeds from the sale of equipment | 15,200 | |||
Loan to Thomas Company | (41,900) | |||
Additions to plant and equipment | (121,800) | |||
Net cash used for investing activities | (148,500) | |||
Financing activities: | ||||
Increase in bonds payable | 88,800 | |||
Increase in common stock | 38,700 | |||
Cash dividends | (28,400) | |||
Net cash provided by financing activities | 99,100 | |||
Net decrease in cash | (17,500) | |||
Beginning cash balance | 27,200 | |||
Ending cash balance | $ | 9,700 | ||
Required: |
Compute Apex Company’s free cash flow for the current year. (Negative amount should be indicated by a minus sign.) |
Free Cash Flow
5.
For the just completed year, Hanna Company had net income of $95,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows: |
December 31 | ||||
End of Year | Beginning of Year | |||
Current assets: | ||||
Cash | $ | 59,000 | $ | 80,000 |
Accounts receivable | $ | 164,000 | $ | 184,000 |
Inventory | $ | 448,000 | $ | 346,000 |
Prepaid expenses | $ | 11,500 | $ | 15,000 |
Current liabilities: | ||||
Accounts payable | $ | 366,000 | $ | 392,000 |
Accrued liabilities | $ | 8,000 | $ | 13,000 |
Income taxes payable | $ | 32,000 | $ | 25,000 |
The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year. |
Required: |
Use the indirect method to determine the net cash provided by (or used in) operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.) |