Financial Accounting Volume 12009 EditionAuthor: Conrado T. ValixJose T. PeraltaChristian Aris M. Valix

Balance Sheet: PAGE 121 PROBLEM 2-1 (IAA)1. The following account balances are available from the records of Easy Company at December 31, 2009.

Accounts Payable350,000

Accounts Receivable450,000

Property, Plant and Equipment3,675,000

Accumulated Depreciation1,200,000

Mortgage payable, due in 5 years1,500,000

Share capital, P100 par2,075,000

Share premium500,000

Cash and Cash Equivalent800,000

Accrued Expenses100,000

Inventories900,000

Long term investments950,000

Note payable, long term debt500,000

Note payable, short term debt200,000

Office supplies50,000

Patent450,000

Prepaid rent150,000

Retained earnings1,350,000

Required: Prepare balance sheet statement 1925000Answer:

Easy CompanyBalance Sheet StatementDecember 31, 2009Assets:Cash950,000Accounts receivable450,000Inventories900,000Prepaid rent150,000Office supplies50,000Patent450,000Property, Plant and equipment3,675,000Accumulated depreciation1,200,000 Total assets7,825,000

Liabilities & Stockholders Equity:Accounts payable350,000Mortgage payable due in 5 years1,500,000Accrued expenses100,000Note payable, long term debt500,000Note payable, short term debt200,000Long term investments 950,000Share Capital P100 par2,075,000Share premium800,000Retained earnings 1,350,000Total liabilities and stock holders equity 7,825,000

Income Statement:

Walter B. Meigs & Robert F. MeigsFinancial Accounting Revised Fifth Edition

1. Balance sheetThe accounting data (listed alphabetically) for Crystal Auto Wash as of August 31, 19__, are shown below. The figure for cash is not given but it can be determined when all the avail info is assembled in the form of a balance sheet.

Accounts payable$ 9,000

Accounts receivables800

Buildings60,000

Capital stock50,000

Cash ?

Income tax payable3,000

Land40,000

Machinery & Equipment85,000

Notes payable29,000

Retained earnings99,400

Supplies 400

On September 1, the following transactions occurred:

1.) Additional capital stock was issued for $15,000 cash.2.) The accounts payables of $9,000 were paid in full. ( No payment was made on the notes payable.)3.) One quarter of the land was sold and cost, the buyer gave a promissory note for $10,000. (Interest applicable to the note may be ignored.)4.) Washing supplies were purchased at a cost of $2,000 to be paid for within 10 days. Washing supplies were also purchased for $600 cash from another car washing concern which was going out of business. These supplies would have cost $1,000 if purchased through regular channels.

Required:a.) Prepare a balance sheet for Aug. 31, 19__.b.) Prepare a balance sheet for Sept. 1, 19__.Answer:

Crystal Auto WashBalance SheetAugust 31, 19__

Assets:Liabilities:

Cash$4,200Notes payable29,000

Accounts receivable 800Accounts payable9,000

Supplies400Income tax payable3,000

Land40,000Stock holders Equity:41,000

Building60,000Capital stock50,000

Machinery & Equipment85,000Retained earnings99,400

Total Assets190,400Total Liabilities & Stock holders equity190,400

Crystal Auto WashBalance SheetSeptember 1, 19__

Assets:Liabilities:

Cash$9,600Notes payable29,000

Accounts receivable 3,000Accounts payable2,000

Supplies800Income tax payable3,000

Land30,000Capital stock65,000

Building60,000Retained earnings99,400

Machinery & Equipment85,000Total Liabilities & Stock holders equity198,400

Notes Receivable10,000

Total Assets198,400

Cash Flow Statement1.) Charlotte Companys net income last year was $91,000. Changes in the companys balance sheet accounts for the year appear below:

Cash ($13,000) Accounts Receivable16,000Inventory 21,000Prepaid Expense(8,000)Long term investments30,000Property, plant & equipment60,000Accumulated depreciation36,000Accounts payable(21,000)Accrued expenses14,000Income tax payable 42,000Bonds payable(50,000)Common stock 20,000Retained earnings 65,000

The company did not dispose of any property, plant and equipment, sell any long term investments, issue any bonds payable, or repurchase of its own common stock during the year. The company declared and paid a cash dividend. The beginning and ending cash balances were $20,000 and $7,000 respectively.

Required: Prepares a statement of cash flows using indirect method.

Answer:

Operating activities:Net income$91,500Adjustments for non-cash effects:Depreciation expense36,000Adjustments for changes in current assets and liabilities:Increase in accounts receivable(16,000)Increase in inventories(21,000)Decrease in prepaid expense8,000Decrease in accounts payable (21,000)Increase accrued liabilities14,000Increase in income taxes payable 42,000__Net cash flows from operating activities133,000

Investing activities:Purchase of long term investments(30,000)Purchase of property, plant & equipment(60,000)__Net cash flows from investing activities(90,000)

Financing activities:Retirement of bonds payable($50,000)Cash dividends paid(26,000)Issuance of common stock 20,000__Net cash flows from financing activities(56,000)__Net change in cash($13,000)Beginning cash balance20,000__Ending cash balance$7,000

2.) CASH FLOW STATEMENTArcade corporations balance sheet and income statement appear below:Income statementSales $723Cost of goods sold453__Gross margin270Selling and administrative expenses163__Income before income taxes107Income tax expense32__Net income$75

Balance sheetEnding balanceBeginning balanceCash$42$36Accounts receivable7780Inventories5458Plant and equipment581480Less: accumulated depreciation(318)__(294)__Total assets$436$360

Accounts payable$23$28Bonds payable293270Common stock6160Retained earnings59__2____Total liabilities and equity$436$360

The company did not dispose of any property, plant, and equipment, retire any bonds payable, or repurchase any of its own common stock during the year. The company declared and paid a cash dividend.

Required: prepare a statement of cash flows using the indirect method.

Answer:

Operating activities:Net income$75Adjustments for non-cash effects:Depreciation expense$25Adjustments for changes in current assets and liabilities:Decrease in accounts receivable3Decrease in inventories 4Decrease in accounts payable(5)__2Net cash flows from operating activities101Investing activities:Purchase of property, plant and equipment(101)__Net cash flows from investing activities(101)

Financing activities:Cash dividends paid(18)Issuance of bonds 23Issuance of common stock 1__Net cash flows from financing activities6___Net change in cash6Beginning cash balance36__Ending cash balance$42

1.) INCOME STATEMENTIn 2003, Burghoff, Inc. (a hardware retail company) sold 10,000 units of its product at an average price of $400 per unit. The company reported estimated Returns and allowances in 2003 of $200,000. Burghoff actually purchased 11,000 units of its product from its manufacturer in 2003 at an average cost of $300 per unit. Burghoff began 2003 with 900 units of its product in inventory (carried at an average cost of $300 per unit). Operating expenses (excluding depreciation) for Burghoff, Inc. in 2003 were $400,000 and depreciation expense was $100,000. Burghoff had $2,000,000 in debt outstanding throughout all of 2003. This debt carried an average interest rate of 10 percent. Finally, Burghoffs tax rate was 40 percent. Burghoffs fiscal year runs from January 1 through December 31. Given this information, construct Burghoffs 2003 multi-step income statement.

Burghoff Inc.Income StatementFor the 12th month period ending December 31, 2003

Net Sales$3,800,000

Cost of Goods Sold3,000,000

Gross Profit800,000

Operating Expenses(excl. depreciation)400,000

Depreciation expense100,000

Operating income300,000

Interest expense200,000

EBT100,000

Taxes40,000

Net income60,000

*Notes: Net sales = Gross sales Returns and Allowances = (10,000) ($400) 200,000. Cost of goods sold = # units sold x Cost per unit = (10,000) ($300). Interest expense = (Debt outstanding) (Average interest rate) = ($2,000,000) (.10). Taxes = (EBT) (Tax rate) = ($100,000) (.40).

2.) INCOME STATEMENTPrepare a multi-step income statement for the Appully Company (a clothing retailer) for the year ending December 31, 2003 given the information below:

Advertising expenditures 68,000 Beginning inventory 256,000 Depreciation 78,000 Ending inventory 248,000 Gross Sales 3,210,000 Interest expense 64,000 Lease payments 52,000 Management salaries 240,000 Materials purchases 2,425,000 R&D expenditures 35,000 Repairs and maintenance costs 22,000 Returns and allowances 48,000 Taxes 51,000

Apully CompanyIncome StatementFor the 12 month period ending December 31, 2003

Net sales$3, 162,000

Cost of goods sold2,433,000

Gross profit729,000

Operating expenses (excluding depreciation)417,000

Depreciation78,000

Operating profit234,000

Interest expense64,000

Earnings before taxes170,000

Taxes 51,000

Net income119,000