Financial Accounting

Volume 1
2009 Edition
Author: Conrado T. Valix
Jose T. Peralta
Christian 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 Payable 350,000
Accounts Receivable 450,000
Property, Plant and Equipment 3,675,000
Accumulated Depreciation 1,200,000
Mortgage payable, due in 5 years 1,500,000
Share capital, P100 par 2,075,000
Share premium 500,000
Cash and Cash Equivalent 800,000
Accrued Expenses 100,000
Inventories 900,000
Long term investments 950,000
Note payable, long term debt 500,000
Note payable, short term debt 200,000
Office supplies 50,000
Patent 450,000
Prepaid rent 150,000
Retained earnings 1,350,000

Required: Prepare balance sheet statement 1925000
Answer:

Easy Company
Balance Sheet Statement
December 31, 2009
Assets:
Cash 950,000
Accounts receivable 450,000
Inventories 900,000
Prepaid rent 150,000
Office supplies 50,000
Patent 450,000
Property, Plant and equipment 3,675,000
Accumulated depreciation 1,200,000
Total assets 7,825,000

Liabilities & Stockholders Equity:
Accounts payable 350,000
Mortgage payable due in 5 years 1,500,000
Accrued expenses 100,000
Note payable, long term debt 500,000
Note payable, short term debt 200,000
Long term investments 950,000
Share Capital P100 par 2,075,000
Share premium 800,000
Retained earnings 1,350,000
Total liabilities and stock holders equity 7,825,000

Income Statement:



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

1. Balance sheet
The 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 receivables 800
Buildings 60,000
Capital stock 50,000
Cash ?
Income tax payable 3,000
Land 40,000
Machinery & Equipment 85,000
Notes payable 29,000
Retained earnings 99,400
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 Wash
Balance Sheet
August 31, 19__


Assets: Liabilities:
Cash $4,200 Notes payable 29,000
Accounts receivable 800 Accounts payable 9,000
Supplies 400 Income tax payable 3,000
Land 40,000 Stock holders Equity: 41,000
Building 60,000 Capital stock 50,000
Machinery &
Equipment
85,000 Retained earnings 99,400
Total Assets 190,400 Total Liabilities &
Stock holders equity
190,400









Crystal Auto Wash
Balance Sheet
September 1, 19__

Assets: Liabilities:
Cash $9,600 Notes payable 29,000
Accounts receivable 3,000 Accounts payable 2,000
Supplies 800 Income tax payable 3,000
Land 30,000 Capital stock 65,000
Building 60,000 Retained earnings 99,400
Machinery &
Equipment
85,000 Total Liabilities &
Stock holders equity
198,400
Notes Receivable 10,000
Total Assets 198,400

Cash Flow Statement
1.) 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 Receivable 16,000
Inventory 21,000
Prepaid Expense (8,000)
Long term investments 30,000
Property, plant & equipment 60,000
Accumulated depreciation 36,000

Accounts payable (21,000)
Accrued expenses 14,000
Income tax payable 42,000
Bonds payable (50,000)
Common stock 20,000
Retained 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 $91,500
Adjustments for non-cash effects:
Depreciation expense 36,000
Adjustments for changes in current assets and liabilities:
Increase in accounts receivable (16,000)
Increase in inventories (21,000)
Decrease in prepaid expense 8,000
Decrease in accounts payable (21,000)
Increase accrued liabilities 14,000
Increase in income taxes payable 42,000__
Net cash flows from operating activities 133,000

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 balance 20,000__
Ending cash balance $7,000





2.) CASH FLOW STATEMENT
Arcade corporations balance sheet and income statement appear below:
Income statement
Sales $723
Cost of goods sold 453__
Gross margin 270
Selling and administrative expenses 163__
Income before income taxes 107
Income tax expense 32__
Net income $75

Balance sheet

Ending balance Beginning balance
Cash $42 $36
Accounts receivable 77 80
Inventories 54 58
Plant and equipment 581 480
Less: accumulated depreciation (318)__ (294)__
Total assets $436 $360

Accounts payable $23 $28
Bonds payable 293 270
Common stock 61 60
Retained earnings 59__ 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 $75
Adjustments for non-cash effects:
Depreciation expense $25
Adjustments for changes in current assets and liabilities:
Decrease in accounts receivable 3
Decrease in inventories 4
Decrease in accounts payable (5)__ 2
Net cash flows from operating activities 101
Investing activities:
Purchase of property, plant and equipment (101)__
Net cash flows from investing activities (101)

Financing activities:
Cash dividends paid (18)
Issuance of bonds 23
Issuance of common stock 1__
Net cash flows from financing activities 6___
Net change in cash 6
Beginning cash balance 36__
Ending cash balance $42

1.) INCOME STATEMENT
In 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 Statement
For the 12
th
month period ending December 31, 2003

Net Sales $3,800,000
Cost of Goods Sold 3,000,000
Gross Profit 800,000
Operating Expenses(excl. depreciation) 400,000
Depreciation expense 100,000
Operating income 300,000
Interest expense 200,000
EBT 100,000
Taxes 40,000
Net income 60,000

*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 STATEMENT
Prepare 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 Company
Income Statement
For the 12 month period ending December 31, 2003

Net sales $3, 162,000
Cost of goods sold 2,433,000
Gross profit 729,000
Operating expenses (excluding depreciation) 417,000
Depreciation 78,000
Operating profit 234,000
Interest expense 64,000
Earnings before taxes 170,000
Taxes 51,000
Net income 119,000