ACC 703 Study Guide - Midterm Guide: Accounts Payable, Retained Earnings, Net Income

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bronzeminnow650

7 May 2016

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Question 1 (40 marks: 60 minutes) (please use a blue booklet) The financial statements (in thousands of dollars) of black ltd. and white inc. for the december. On june 30, 2014, black purchased 90% of the outstanding voting shares of white for. On that date, due to the synergies expected as a result of the acquisition, the fair value of the remaining 10% of the shares was the same as what black paid for the 90%. Also on this date, white had common stock of ,000 and retained earnings of ,000. These c. receivables were collected in full on november 30, 2014. All other income is accounted for in other revenue: all due to/due from parent/subsidiary amounts have been included in accounts payable and receivables in the 2015 unconsolidated financial statements for both black and. White: during 2015, black charged white a management fee of .

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Integrative Problem Presented here are a statement of income and retained earnings and comparative balance sheets for Gallagher, Inc., which operates a national chain of sporting goods stores. Gallagher, Inc. Statement of Income and Retained Earnings For the Year Ended December 31, 2016 (all amounts in thousands of dollars)

Net sales $48,000

Cost of goods sold 36,000

Gross profit $12,000

Selling, general, and administrative expense 6,000

Operating income $6,000

Interest expense 280

Income before tax $5,720

Income tax expense 2,280

Net income $3,440

Preferred dividends 100 Income available to common $3,340

Common dividends 500 To retained earnings $2,840

Retained earnings, 1/1 12,000

Retained earnings, 12/31 $14,840

Gallagher, Inc. Comparative Balance Sheets December 31, 2016 and 2015 (all amounts in thousands of dollars) December 31 2016 2015

Cash $840 $2,700

Accounts receivable 12,500 9,000

Inventory 8,000 5,500

Prepaid insurance 100 400

Total current assets $21,440 $17,600

Land $4,000 $4,000

Buildings and equipment 12,000 9,000

Accumulated depreciation (3,700) (3,000)

Total long-term assets $12,300 $10,000

Total assets $33,740 $27,600

Accounts payable $7,300 $5,000

Taxes payable 4,600 4,200

Notes payable 2,400 1,600

Current portion of bonds 200 200

Total current liabilities $14,500 $11,000

Bonds payable 1,400 1,600

Total liabilities $15,900 $12,600

Preferred stock, $5 par $1,000 $1,000

Common stock, $1 par 2,000 2,000

Retained earnings 14,840 12,000

Total stockholdersâ equity $17,840 $15,000

Total liabilities and stockholdersâ equity $33,740 $27,600

Required: 1. Prepare a statement of cash flows for Gallagher, Inc., for the year ended December 31, 2016, using the indirect method in the Operating Activities section of the statement. If an answer is zero, please enter zero ("0"). Use the minus sign to indicate cash outflows, a decrease in cash, or cash payments. Gallagher, Inc. Statement of Cash Flows For The Year Ended December 31, 2016 (In Thousands of Dollars)

Cash flows from operating activities $

Adjustments to reconcile net income to net cash provided by operating activities:

Net cash provided by operating activities $

Cash flows from investing activities $

Net cash used by investing activities $

Cash flows from financing activities $

Net cash provided by financing activities $

Cash balance, December 31, 2015

Cash balance, December 31, 2016 $

2. Gallagher's management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to two decimal points. For percentages, round to two decimal places before converting to a percentage. For example, 0.881 would be entered as 88. Assume 360 days per year.

a. Current ratio to 1

b. Acid-test ratio to 1

c. Cash flow from operations to current liabilities ratio %

d. Accounts receivable turnover ratio times

e. Number of days' sales in receivables days

f. Inventory turnover ratio times

g. Number of days' sales in inventory days

h. Debt-to-equity ratio to 1

i. Debt service coverage ratio to 1

j. Cash flow from operations to capital expenditures ratio % 3.

tealtrout582

Paulee Corporation paid $24,800 for an 80% interest in SergioCorporation on January 1, 2015, at which time Sergio'sstockholders' equity consisted of $15,000 of Common Stock and$6,000 of Retained Earnings. The fair values of SergioCorporation's assets and liabilities were identical to reorded bookvalues when Paulee acquired its 80% interest.

Sergio Corporation reported net income of $4,000 and paiddividends of $2,000 during 2015. Paulee Corporation sold inventoryitems to Sergio during 2015 and 2016 as follows:

	2015	2016
Paulee's sales to Sergio	$5,000	$6,000
Paulee's cost of sales to Serigo	3,000	3,500
Unrealized profit at year-end	1,000	1,500

At December 31, 2016, the accounts payable of Sergio include$1,500 owed to Paulee for inventory purchases.

Financial statements of Paulee and Sergio appear in the firsttwo columns of the partially completed working papers.

REQUIRED:

1. Show all preliminary computations (5 pts)

2. Complete the consolidation working papers for PauleeCorporation and Subsidiary for the year ended December 31, 2016 (13pts)

3. Give all eliminating journal entires (6 pts)

	Paulee	Sergio	Eliminations- Debit	Eliminations- Credit	Non-Cont. Interest	Consolidated
INCOME STATEMENT Sales	$43,000	$20,000
Income from Sergio	6,700
Cost of Sales	(22,000)	(8,000)
Other expenses Non-controlling interest Expense	(12,200)	(3,000)
Net Income	15,500	9,000
RETAINED EARNINGS Retained Earnings 1/1	9,000	8,000
Add: Net Income	15,500	9,000
Less: Dividends	(10,000)	(5,000)
Retained Earnings 12/31	$14,500	$12,000
BALANCE SHEET Cash	5,400	3,000
Accounts Receivable- Net	14,000	10,000
Dividend Receivable	2,000
Inventories	18,000	8,000
Goodwill
Equipment and Buildings- Net	24,000	31,000
Investment in Sergio	28,100
TOTAL ASSETS	$91,500	$52,000
LIAB. & EQUITY Accounts payable	17,500	12,500
Dividend payable	7,000	2,500
Other Debt	12,500	10,000
Capital Stock	40,000	15,000
Retained Earnings	14,500	12,000
1/1 Noncontrl Interest
12/31 Noncontrl Interest
LIAB. & EQUITY	$91,500	$52,000

byzantiumcamel839

Sergio Corporation reported net income of $4,000 and paiddividends of $2,000 during 2015. Paulee Corporation sold inventoryitems to Sergio during 2015 and 2016 as follows:

	2015	2016
Paulee's sales to Sergio	$5,000	$6,000
Paulee's cost of sales toSerigo	3,000	3,500
Unrealized profit atyear-end	1,000	1,500

At December 31, 2016, the accounts payable of Sergio include$1,500 owed to Paulee for inventory purchases.

Financial statements of Paulee and Sergio appear in the firsttwo columns of the partially completed working papers.

REQUIRED:

1. Show all preliminary computations (5 pts)

2. Complete the consolidation working papers for PauleeCorporation and Subsidiary for the year ended December 31, 2016 (13pts)

3. Give all eliminating journal entires (6 pts)

	Paulee	Sergio	Eliminations- Debit	Eliminations- Credit	Non-Cont. Interest	Consolidated
INCOME STATEMENT Sales	$43,000	$20,000
Income from Sergio	6,700
Cost of Sales	(22,000)	(8,000)
Other expenses Non-controlling interest Expense	(12,200)	(3,000)
Net Income	15,500	9,000
RETAINED EARNINGS Retained Earnings 1/1	9,000	8,000
Add: Net Income	15,500	9,000
Less: Dividends	(10,000)	(5,000)
Retained Earnings 12/31	$14,500	$12,000
BALANCE SHEET Cash	5,400	3,000
Accounts Receivable- Net	14,000	10,000
Dividend Receivable	2,000
Inventories	18,000	8,000
Goodwill
Equipment and Buildings-Net	24,000	31,000
Investment in Sergio	28,100
TOTALASSETS	$91,500	$52,000
LIAB. & EQUITY Accounts payable	17,500	12,500
Dividend payable	7,000	2,500
Other Debt	12,500	10,000
Capital Stock	40,000	15,000
Retained Earnings	14,500	12,000
1/1 Noncontrl Interest
12/31 Noncontrl Interest
LIAB. &EQUITY	$91,500	$52,000

rubyrhinoceros419

ACC 703 Study Guide - Midterm Guide: Accounts Payable, Retained Earnings, Net Income

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