ACG 2021 Lecture Notes - Lecture 12: Treasury Stock, Professional Code Of Quebec, Retained Earnings
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A fire destroyed your firm’s ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet
CONSOLIDATED BALANCE SHEETS (USD $) | End of year 2 | End of year 1 | |
In Thousands, unless otherwise specified | |||
Current assets: | |||
Cash and cash equivalents |   | 598 | |
Receivables, net |   | 230 | |
Inventories, net |   | 2309 | |
Other current assets |   | 47 | |
Total current assets |   | 3184 | |
Property and equipment, net of accumulated depreciation |   | 1292 | |
Assets held for sale |   | 1 | |
Goodwill |   | 76 | |
Intangible assets, net |   | 29 | |
Other assets, net |   | 32 | |
Assets, Total |   | 4614 | |
Current liabilities: |   | 0 | |
Current portion of long-term debt |   | 0 | |
Accounts payable |   | 2030 | |
Accrued expenses |   | 380 | |
Other current liabilities |   | 150 | |
Total current liabilities |   | 2560 | |
Long-term debt |   | 604 | |
Other long-term liabilities |   | 239 | |
Commitments and Contingencies |   | 0 | |
Stockholders Equity Attributable to Parent [Abstract] |   | 0 | |
Preferred stock, nonvoting, $00001 par value |   | 0 | |
Common stock, voting, $00001 par value |   | 0 | |
Additional paid-in capital |   | 520 | |
Treasury stock, at cost |   | -27 | |
Accumulated other comprehensive income (loss) |   | 3 | |
Retained earnings |   | 715 | |
Total stockholders equity |   | 1210 | |
Liabilities and Stockholders Equity, Total |   | 4613 | |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Year 2 | ||
Net sales |   | ||
Cost of sales, including purchasing and warehousing costs |   | ||
Gross profit |   | ||
Selling, general and administrative expenses |   | ||
Operating income |   | ||
Interest expense |   | ||
Other income, net |   | ||
Total other, net |   | ||
Income before provision for income taxes |   | ||
Provision for income taxes |   | ||
Net income |   | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | ||
In Thousands, unless otherwise specified | Year 2 | ||
Cash flows from operating activities: | |||
Net income | $392 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 208 | ||
Share-based compensation | 13 | ||
Loss on property and equipment, net | 1 | ||
Other | 2 | ||
Provision for deferred income taxes | -2 | ||
Excess tax benefit from share-based compensation | -16 | ||
Increase Decrease in Operating Capital | |||
Receivables, net | -32 | ||
Inventories, net | -204 | ||
Other assets | 11 | ||
Accounts payable | 113 | ||
Accrued expenses | 63 | ||
Other liabilities | -4 | ||
Net cash provided by operating activities | 545 | ||
Cash flows from investing activities: | |||
Purchases of property and equipment | -196 | ||
Payments to Acquire Businesses, Gross | -186 | ||
Sale of certain assets of acquired business | 19 | ||
Proceeds from sales of property and equipment | 1 | ||
Net cash used in investing activities | -362 | ||
Cash flows from financing activities: | |||
(Decrease) increase in bank overdrafts | -3 | ||
Decrease in financed vendor accounts payable | 0 | ||
Issuance of senior unsecured notes | 449 | ||
Payment of debt related costs | -9 | ||
Borrowings under credit facilities | 0 | ||
Payments on credit facilities | 0 | ||
Dividends paid | -18 | ||
Proceeds from the issuance of common stock, primarily exercise of stock options | 4 | ||
Tax withholdings related to the exercise of stock appreciation rights | -22 | ||
Excess tax benefit from share-based compensation | 16 | ||
Repurchase of common stock | -81 | ||
Contingent payment accrued on acquisitions | 5 | ||
Other | -1 | ||
Net cash provided by (used in) financing activities | 331 | ||
Net increase (decrease) in cash and cash equivalents | 514 | ||
Cash and cash equivalents, beginning of period | 598 | ||
Cash and cash equivalents, end of period | 1,112 | ||
Supplemental cash flow information: | |||
Interest paid | 35 | ||
Income tax payments | 219 | ||
Non-cash transactions: | |||
Accrued purchases of property and equipment | 21 | ||
Retirement of common stock | 0 | ||
Contingent consideration accrued on acquisitions | 0 | ||
Changes in other comprehensive income | 1 | ||
Declared but unpaid cash dividends | $4 |
Parson Company acquired an 80 percent interest in Syber Companyon January 1, 2017. Any portion of Syber's business fair value inexcess of its corresponding book value was assigned to trademarks.This intangible asset has subsequently undergone annualamortization based on a 15-year life. Over the past two years,regular intra-entity inventory sales transpired between the twocompanies. No payment has yet been made on the latest transfer. Alldividends are paid in the same period as declared.
The individual financial statements for the two companies aswell as consolidated totals for 2018 follow:
Parson Company | Syber Company | Consolidated Totals | |||||||||
Sales | $ | (990,000 | ) | $ | (790,000 | ) | $ | (1,622,000 | ) | ||
Cost of goods sold | 595,000 | 495,000 | 946,000 | ||||||||
Operating expenses | 138,000 | 157,000 | 298,000 | ||||||||
Income of Syber | (103,300 | ) | 0 | 0 | |||||||
Separate company net income | $ | (360,300 | ) | $ | (138,000 | ) | |||||
Consolidated net income | $ | (378,000 | ) | ||||||||
Net income attributable tononcontrolling interest | 17,700 | ||||||||||
Net income attributable toParson Company | $ | (360,300 | ) | ||||||||
Retained earnings, 1/1/18 | $ | (640,100 | ) | $ | (328,000 | ) | $ | (640,100 | ) | ||
Net income (above) | (360,300 | ) | (138,000 | ) | (360,300 | ) | |||||
Dividends declared | 68,000 | 49,000 | 68,000 | ||||||||
Retained earnings, 12/31/18 | $ | (932,400 | ) | $ | (417,000 | ) | $ | (932,400 | ) | ||
Cash and receivables | $ | 488,000 | $ | 99,000 | $ | 561,200 | |||||
Inventory | 209,000 | 198,000 | 388,000 | ||||||||
Investment in Syber Company | 446,400 | 0 | 0 | ||||||||
Land, buildings, andequipment | 418,000 | 317,000 | 735,000 | ||||||||
Trademarks | 0 | 0 | 32,500 | ||||||||
Total assets | $ | 1,561,400 | $ | 614,000 | $ | 1,716,700 | |||||
Liabilities | $ | (365,000 | ) | $ | (119,000 | ) | $ | (423,800 | ) | ||
Common stock | (215,000 | ) | (78,000 | ) | (215,000 | ) | |||||
Additional paid-in capital | (49,000 | ) | 0 | (49,000 | ) | ||||||
Noncontrolling interest inSyber | 0 | 0 | (96,500 | ) | |||||||
Retained earnings (above) | (932,400 | ) | (417,000 | ) | (932,400 | ) | |||||
Total liabilities andequities | $ | (1,561,400 | ) | $ | (614,000 | ) | $ | (1,716,700 | ) | ||
What was the ending Noncontrolling Interest in SyberCompany computed? |
Statement of Cash Flows (Indirect Method) The Towne Company’s income statement and comparative balance sheets as of December 31 of 2016 and 2015 follow:
TOWNE COMPANY Income Statement For the Year Ended December 31, 2016 | ||
---|---|---|
Service Fees Earned | $317,000 | |
Dividend and Interest Income | 14,000 | |
$331,000 | ||
Wages and Other Operating Expenses | $285,000 | |
Depreciation Expense | 55,000 | |
Franchise Amortization Expense | 10,000 | |
Loss on Sale of Equipment | 7,000 | |
Gain on Sale of Investments | (17,000) | 340,000 |
Net Loss | $(9,000) |
TOWNE COMPANY Balance Sheets | ||
---|---|---|
Dec. 31, 2016 | Dec. 31, 2015 | |
Assets | ||
Cash | $43,000 | $33,000 |
Accounts Receivable | 13,000 | 18,000 |
Interest Receivable | - | 4,000 |
Prepaid Expenses | 16,000 | 10,000 |
Long-term Investments—Available for Sale | - | 70,000 |
Fair Value Adjustment to Investments | - | 10,000 |
Plant Assets | 696,000 | 655,000 |
Accumulated Depreciation | (237,000) | (185,000) |
Franchise | 91,000 | 29,000 |
Total Assets | $622,000 | $644,000 |
Liabilities and Stockholders’ Equity | ||
Accrued Liabilities | $12,000 | $14,000 |
Notes Payable | - | 26,000 |
Common Stock ($10 par value) | 595,000 | 535,000 |
Retained Earnings | 35,000 | 59,000 |
Unrealized Gain on Investments | - | 10,000 |
Treasury Stock | (20,000) | - |
Total Liabilities and Stockholders’ Equity | $622,000 | $644,000 |
During the year, the following transactions occurred:
1. Sold equipment for $9,000 cash that originally cost $19,000 and had $3,000 accumulated depreciation.
2. Sold long‑term investments that had cost $70,000 for $87,000 cash. Unrealized gains totaling $10,000 related to these investments had been recorded in earlier years. At year‑end, the fair value adjustment and unrealized gain account balances were eliminated.
3. Paid cash to extend the company’s exclusive franchise for another three years.
4. Paid off a note payable at the bank on January 1.
5. Declared and paid a $15,000 dividend.
6. Purchased treasury stock for cash.
7. Acquired land valued at $60,000 by issuing 6,000 shares of common stock.
Required
a. Compute the change in cash that occurred in 2016.
b. Prepare a statement of cash flows using the indirect method.
a. Change in Cash during 2016 $Answer AnswerIncreaseDecrease
b. Use a negative sign with cash outflow answers.
TOWNE COMPANY Statement of Cash Flows For Year Ended December 31, 2016 | ||
---|---|---|
Cash Flow from Operating Activities | ||
Net Loss | $Answer | |
Add (deduct) items to convert net income to cash basis | ||
Depreciation | Answer | |
Franchise Amortization | Answer | |
Loss on Sale of Equipment | Answer | |
Gain on Sale of Investments | Answer | |
Accounts Receivable | AnswerIncreaseDecrease | Answer |
Interest Receivable | AnswerIncreaseDecrease | Answer |
Prepaid Expenses | AnswerIncreaseDecrease | Answer |
Accrued Liabilities | AnswerIncreaseDecrease | Answer |
Cash Provided by Operating Activities | Answer | |
Cash Flow from Investing Activities | ||
Sale of Equipment | Answer | |
Sale of Investments | Answer | |
Extension of Franchise | Answer | |
Cash Provided by Investing Activities | Answer | |
Cash Flow from Financing Activities | ||
Payment of Notes Payable | Answer | |
Payment of Dividends | Answer | |
Purchase of Treasury Stock | Answer | |
Cash Used by Financing Activities | Answer | |
Net in Cash AnswerIncreaseDecrease | Answer | |
Cash at Beginning of Year | Answer | |
Cash at End of Year | $Answer |