The following information is for Bright Eyes Auto Supplies:Bright Eyes Auto Supplies Balance Sheet December 31, 2015 Cash $40,000 Accounts Payable $ 130,000 Prepaid Insurance 80,000 Salariesand Wages Payable 50,000 Accounts Receivable 100,000 MortgagePayable 150,000 Inventory 140,000 Total Liabilities 330,000 LandHeld for Investment 180,000 Land 250,000 Buildings $200,000 CommonStock $400,000 Less Accumulated Retained Earnings 340,000 740,000Depreciation (60,000) 140,000 Trademark 140,000 Total Assets$1,070,000 Total Liabilities and Stockholdersâ Equity $1,070,000The total dollar amount of liabilities to be classified as currentliabilities is $180,000. $130,000. $50,000. $330,000.
The following information is for Bright Eyes Auto Supplies:Bright Eyes Auto Supplies Balance Sheet December 31, 2015 Cash $40,000 Accounts Payable $ 130,000 Prepaid Insurance 80,000 Salariesand Wages Payable 50,000 Accounts Receivable 100,000 MortgagePayable 150,000 Inventory 140,000 Total Liabilities 330,000 LandHeld for Investment 180,000 Land 250,000 Buildings $200,000 CommonStock $400,000 Less Accumulated Retained Earnings 340,000 740,000Depreciation (60,000) 140,000 Trademark 140,000 Total Assets$1,070,000 Total Liabilities and Stockholdersâ Equity $1,070,000The total dollar amount of liabilities to be classified as currentliabilities is $180,000. $130,000. $50,000. $330,000.
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Related questions
Lea Company acquired all of Tenzing Corporation's stock on January 1, 20X6 for $150,000 cash. On December 31, 20X8, the trial balances of the two companies were as follows:
| Lea company | Tenzing Corp. | |||
| Debit | Credit | Debit | Credit | |
| Cash | $90,000 | $58,000 | ||
| Accounts Receivable | 97,000 | 55,000 | ||
| Land | 80,000 | 45,000 | ||
| Buildings and Equipment | 300,000 | 200,000 | ||
| Investment in Tenzing Corporation | 180,000 | |||
| Cost of Services Provided | 140,000 | 75,000 | ||
| Depreciation Expense | 30,000 | 20,000 | ||
| Other Expenses | 70,000 | 35,000 | ||
| Dividends Declared | 40,000 | 20,000 | ||
| Accumulated Depreciation | $180,000 | $100,000 | ||
| Accounts Payable | 42,000 | 18,000 | ||
| Taxes Payable | 20,000 | 20,000 | ||
| Notes Payable | 75,000 | 50,000 | ||
| Common Stock | 100,000 | 50,000 | ||
| Retained Earnings | 265,000 | 90,000 | ||
| Service Revenue | 300,000 | 180,000 | ||
| Income from Subsidiary | 45,000 | |||
| $1,027,000 | $1,027,000 | $508,000 | $508,000 | |
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition. The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
4. Based on the preceding information, all of the following are consolidating entries required on December 31, 20X8, to prepare consolidated financial statements, except:
| A) | Common Stock | 50,000 | |
| Retained Earnings | 90,000 | ||
| Income from Tenzing Corp. | 50,000 | ||
| Dividends declared | 20,000 | ||
| Investment in Tenzing Corp. | 170,000 | ||
| B) | Accounts Payable | 4,000 | |
| Accounts Receivable | 4,000 | ||
| C) | Depreciation Expense | 5,000 | |
| Income from Tenzing Corp. | 5,000 | ||
| D) | Buildings and Equipment | 20,000 | |
| Accumulated Depreciation | 10,000 | ||
| Investment in Tenzing Corp. | 10,000 |
Option A
Option B
Option C
Option D
5. Based on the preceding information, what amount will be reported as total assets in the consolidated balance sheet for 20X8?
$666,000
$747,000
$651,000
$946,000
6. Based on the preceding information, what amount will be reported for total accounts payable in the consolidated balance sheet for the year 20X8?
$56,000
$46,000
$60,000
$42,000
Statement of Cash Flows Using a Work SheetâIndirect Method (Appendix)
Peoria Corp. just completed another successful year, as indicated by the following income statement:
| For the Year Ended December 31, 2017 | |
| Sales revenue | $1,250,000 |
| Cost of goods sold | 700,000 |
| Gross profit | $550,000 |
| Operating expenses | 150,000 |
| Income before interest and taxes | $400,000 |
| Interest expense | 25,000 |
| Income before taxes | $375,000 |
| Income tax expense | 150,000 |
| Net income | $225,000 |
Presented here are comparative balance sheets:
| December 31 | |||
| 2017 | 2016 | ||
| Cash | $52,000 | $90,000 | |
| Accounts receivable | 180,000 | 130,000 | |
| Inventory | 230,000 | 200,000 | |
| Prepayments | 15,000 | 25,000 | |
| Total current assets | $477,000 | $445,000 | |
| Land | $750,000 | $600,000 | |
| Plant and equipment | 700,000 | 500,000 | |
| Accumulated depreciation | (250,000) | (200,000) | |
| Total long-term assets | $1,200,000 | $900,000 | |
| Total assets | $1,677,000 | $1,345,000 | |
| Accounts payable | $130,000 | $148,000 | |
| Other accrued liabilities | 68,000 | 63,000 | |
| Income taxes payable | 90,000 | 110,000 | |
| Total current liabilities | $288,000 | $321,000 | |
| Long-term bank loan payable | $350,000 | $300,000 | |
| Common stock | $550,000 | $400,000 | |
| Retained earnings | 489,000 | 324,000 | |
| Total stockholders' equity | $1,039,000 | $724,000 | |
| Total liabilities and stockholders' equity | $1,677,000 | $1,345,000 | |
Other information is as follows:
Dividends of $60,000 were declared and paid during the year.
Operating expenses include $50,000 of depreciation.
Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Balances | Cash Inflows (Outflows) | |||||
| Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
| Cash | $ | $ | $ | $ | $ | $ |
| Accounts Receivable | ||||||
| Inventory | ||||||
| Prepayments | ||||||
| Land | ||||||
| Plant and Equipment | ||||||
| Accumulated Depreciation | ||||||
| Accounts Payable | ||||||
| Other Accrued Liabilities | ||||||
| Income Taxes Payable | ||||||
| Long-Term Bank Loan Payable | ||||||
| Common Stock | ||||||
| Retained Earnings | ||||||
| Net Income | ||||||
| Totals | $ | $ | $ | $ | $ | $ |
| Net increase (decrease) in cash | $ | |||||
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Peoria Corp. | |
| Statement of Cash Flows | |
| For the Year Ended December 31, 2017 | |
| Cash Flows from Operating Activities | |
| $ | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| $ | |
| Cash Flows from Investing Activities | |
| $ | |
| $ | |
| Cash Flows from Financing Activities | |
| $ | |
| $ | |
| $ | |
| Cash balance, December 31, 2016 | |
| Cash balance, December 31, 2017 | $ |
3. During the year Peoria experienced a decrease in cash at the end of the year due to
The company sells many styles of earrings, but all are sold for the same priceâ$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):
| January (actual) | 20,000 |
| February (actual) | 24,000 |
| March (actual) | 40,000 |
| April (budget) | 100,000 |
| May (budget) | 140,000 |
| June (budget) | 80,000 |
| July (budget) | 60,000 |
| August (budget) | 26,000 |
| September (budget) | 32,000 |
The concentration of sales before and during May is due to Motherâs Day. Sufficient inventory should be on hand at the end of each month to supply 45% of the earrings sold in the following month.
Suppliers are paid $4 for a pair of earrings. One-half of a monthâs purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 22% of a monthâs sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 8% is collected in the second month following sale.
Monthly operating expenses for the company are given below:
| Variable: | |
| Sales commissions | 5% of Sales |
| Fixed: | |
| Advertising | $200,000 |
| Rent | $18,000 |
| Salaries | $106,000 |
| Utilities | $7,000 |
| Insurance | $3,000 |
| Depreciation | $14,000 |
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.
The companyâs balance sheet at March 31 is given below:
| Assets | |
| Cash | $74,000 |
| Accounts receivable (net) | 331,200 |
| Inventory | 180,000 |
| Prepaid insurance | 21,000 |
| Property and equipment (net) | 950,000 |
| Total assets | $1,556,200 |
| Liabilities and Stockholdersâ Equity | |
| Accounts payable | $134,000 |
| Dividends payable | 15,000 |
| Common stock | 800,000 |
| Retained earnings | 607,200 |
| Total liabilities and stockholdersâ equity | $1,556,200 |
The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
a. A sales budget, by month and in total. (3 points)
b. A schedule of expected cash collections from sales, by month and in total. (3 points)
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (3 points)
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. (3 points)
A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000. (8 points)
