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Chapter 5

06 - Chapter 5 Supplementary Notes.docx

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Department
Accounting
Course
ACCTG414
Professor
Jocelyn King
Semester
Fall

Description
ACCTG 414 Chapter 5 Supplementary Notes Daisy, Inc. Balance Sheet December 31, 2012 December 31 Difference 2011 2012 Dr (CR) Cash $ 15,000 $ 21,000 $ 6,000 Accounts Receivable 30,000 28,500 (1,500) Allowance for Doubtful Accts. (1,500) (2,000) ( 500) Inventory 10,000 15,000 5,000 Prepaid Insurance 2,400 1,400 (1,000) Operational Assets 80,000 81,000 1,000 Accumulated Amortization (20,000) (16,000) 4,000 Land 40,100 81,100 41,000 Long-term Investments 50,000 60,000 10,000 Total Assets $206,000 $270,000 Accounts Payable $ 10,000 $ 11,000 (1,000) Salaries Payable 2,000 1,000 1,000 Interest Payable - 1,000 (1,000) Notes Payable, long-term 20,000 46,000 (26,000) Common Shares, no-par 150,000 186,000 (36,000) Retained Earnings 24,000 25,000 (1,000) Total Liabilities and Equit$206,000 $270,000 Changes to non-cash accounts $ (6,000) $ -0- . Daisy, Inc. Income Statement For the year ended December 31, 2012 Sales $ 65,000 Investment income 15,000 $ 80,000 Cost of goods sold $ 35,000 Amortization expense 5,000 Bad debt expense 1,000 Insurance expense 1,000 Interest expense 2,000 Salaries expense 12,000 Miscellaneous expenses 13,000 Loss on sale of operating assets 2,000 Income tax expense 3,000 Total expenses $ 74,000 Net income $ 6,000 Additional Information Page 1 of 8 ACCTG 414 Chapter 5 Supplementary Notes a. Wrote off $500 of accounts receivable as uncollectible. b. Sold for cash proceeds of $4,000 operational assets that had an original cost of $15,000 and accumulated amortization of $9,000. c. Recorded income on long-term investments of $15,000, of which $5,000 was received in cash and $10,000 was accrued directly to the long-term investments account. d. Issued common shares for $15,000 cash. e. Declared and paid a $5,000 cash dividend. f. Purchased land for $20,000 cash. g. Acquired land worth $21,000, giving common shares in return. h. Acquired operational assets of $16,000, giving in return a $16,000 note payable. i. Made additional long-term borrowings by note of $10,000. Page 2 of 8 ACCTG 414 Chapter 5 Supplementary Notes Daisy, Inc. Cash Flow Statement (Indirect Method) For the year ended December 31, 2012 Cash Provided by Operations (Note W) Net Income $ 6,000 Add back (deduct items not affecting cash): Decrease in net Receivables 2,000 Increase in Inventory (5,000) Decrease in Prepaid Insurance 1,000 Increase in Accounts Payable 1,000 Decrease in Salaries Payable (1,000) Increase in Interest Payable 1,000 Loss on sale of operational assets 2,000 Amortization expense 5,000 Excess of interest income recognized over cash received (10,000) Cash Provided by Operations $ 2,000 Cash Provided by (Used in) Investing Activities Purchase of land for cash (see Note X) $(20,000) Proceeds on sale of operational assets (see Note Y) 4,000 Cash Used in Investing Activities $(16,000) Cash Provided by (Used in) Financing Activities Issuance of Note Payable for cash (see Note Y) $ 10,000 Issuance of Common Shares for cash (see Note X) 15,000 Payment of dividends (5,000) Cash Provided by Financing Activities $ 20,000 Change in Cash and Cash Equivalents $ 6,000 Cash and Cash Equivalents - Beginning of Year 15,000 Cash and Cash Equivalents - End of Year $ 21,000 Included in the company’s footnotes would be the following: Note W Cash interest payments during the year totalled $1,000 Note X Acquired land valued at $21,000 in return for the issuance of common shares. Note Y Acquired operational assets valued at $16,000 in return for the issuance of notes payable. Page 3 of 8 ACCTG 414 Chapter 5 Supplementary Notes Case 1 Analyzing the Cash Flow Statement: an Exercise The Cashflow Company is a small, closely held company whose shares are held by various members of the Cashflow family. The senior Mr. Cashflow, who, last month, abruptly sold his 40% of the company, resigned, and moved to the South Seas, managed the company. You are asked by the remaining shareholders to analyze the cash flow statement in order to assess the financial condition of the company as they prepare to search for a new chief executive officer. The Cashflow Company Cashflow Statement (dollars in $000) For the year ended August 31, 2012 Cash provided by (used In) operations: Net income $ 250,000 Add (deduct) items not affecting cash Depreciation expense 20,000 Patent amortization 5,000 Gain on sale of land (20,000) Gain on sale of depreciable assets (30,000) Loss on sale of investments 25,000 Change in noncash working capital accounts Increase in accounts receivable (200,000) Increase in inventory (350,000) Increase in accounts payable 80,000 Increase accrued wages 80,000 Cash (used in) operations $ (140,000) Cash provided by Investing: Proceeds from sale of investments $ 75,000 Proceeds from sale of land 70,000 Proceeds from sale of depreciable assets
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