Problem 1.19:
Factory
Interest Revenue
Common Stock Issued
Internally-Developed Goodwill
Automobiles
Cash
Unsettled Suit
Commissions Earned by Staff
Supplies Inventory
Note Payable—3 months
Increase in Land Value
Dividends
Taxes Payable
Note Payable—6 years
Problem 1.22:
Yr. 8 Yr. 9 Yr. 10 Yr.11
Current Assets $11,132 $15,450 $18,473
NC Assets _____ 15,871 _____
Total Assets ____ 29,163
Current Liab. 8,162 7,454 7,140 _____
NC Liab. 4,459 _____ 5,373
Contr. Cap. _____ 458 _____ 1,727
Retained E 13,556 15,755 _____ _____
Total L & SHE 26,211 _____ 34,488
Problem 1.29:
Cash Inflows
Proceeds from ST Borrowing 0 0 0
Issue of Long Term Debt 681 10 0
Issue of Common Stock 45 116 122
Cash Revenue from Operations 2,753 3,143 3,893
Sales of Marketable Securities 361 0 0
Other Financing 0 0 38
Total Inflows 3,840 3,269 4.053
Cash Outflows
Acquisition of PP&E 135 50 39
Purchase of Marketable Sec. 0 197 83
Pay off Long Term Debt 33 20 15
Acquisition of Other Comp 63 6 0
Cash Exp. From Operations 2,884 3,263 3,719
Other Financing Outflows 38 16 0
Total Outflows 3,153 3,552 3,856
Change in Cash 689 (282) 198
Statement of Cash Flows
Operating
Investing
Financing
Problem 1.34:
Balance Sheet
Accounts Pay. $157,415 $156,755
Accounts Rec. 88,799 73,448
Cash 378,511 418,819
Common Stock 352,943 449,934
Current Mat. of Long-Term Debt 11,996 7,873
Inventories 50,035 65,152
Long-term Debt 623,309 871,717
Other Current Assets 56,810 73,586
Other Current Liab. 681,242 795,838
Other Noncur. Assets 4,231 12,942
Other Noncur. Liab. 844,116 984,142
Property, Plant and Equip. (net) 4,137,610 5,008,166
Retained Earnings 2,044,975 2,385,854
Income Statement
Fuel Expense $492,415
Income Tax Exp. 292,233
Interest Expense 22,883
Interest Revenue 14,918
Maintenance Expense 367,606
Other Operating Exp. 1,638,753
Sales Revenue 4,735,587
Salaries and Benefits Exp. 1,455,237
Problem 2.17: Is there an asset created if?
Rents space for five years, starting next month. Pays
$125K for 1st year rent & $130K deposit. Commits to
paying $500K later for last 4 years.
Spends $10K on partitions, $6.5K on paint & $20K
on carpet.
Buys display counter for $30K less 2% discount;
pays $1.2K to transport and $0.8K to install.
Hires store manager at $60K.
Spends $1.5K on this month’s advertising.
Buys $160K of inventory; pays for $120K with 2%
discount; $12K is returned, rest is still owed.
Problem 2.18: Is there a liability created if?
Sign contract to have landscaping done next year for
$7.5K.
Receive $72 for magazine subscription starting next
year.
Receive $2M toward a $10M bridge to be started next
year.
Issue common stock for $7.6M.
Receive $100K bank loan, 6% interest to be paid.
Sign a contract to purchase at least $60K of supplies
next year.
Place a $15K order on the above contract.
Problem 2.27: What journal entries for:
1. Issue stock for $30K cash.
2. Borrow $5K from bank, 6% future interest.
3. Rent a building and prepay $12K.
4. Acquire equipment for cash of $8K.
5. Acquire $25K of inventory, $12K for cash,
the rest on credit.
6. Sign a contract to provide $2K of groceries
per week, receive $4K advance.
7. Buy insurance starting next year for $1.2K
cash.
8. Pay $600 in advance for ads for next month.
9. Place a supplies order for $35K to be delivered
and paid for next month.
Problem 2.29: Prepare balance sheet, new co.
1. Issue stock for $800K.
2. Acquire land for $50K, building for $450K.
3. Purchase inventory on account for $280K.
4. Pay for $250K in 3, less 2% discount. Still owe
$30K.
5. Pay $12K for one year insurance, starting next
year.
6. Borrow $300K from bank on 12/31. Interest is
due later.
7. Acquire equipment on 12/31 for $80K 6% note.
Problem 3.18: Neiman Marcus
How much revenue is recognized in Feb, March & April for:
Collect $800 in March for a suit to be delivered in April
Collects $2,160 in March cash sales
Collects $39,200 in March for sales in February
Sells $59,400 in March, to be collected in April
Collects $18,000 in rent on March 1 for 3/1 – 4/30
Collects $18,000 in rent on April 1 for 3/1 – 4/30
Problem 3.20: Sun Microsystems
How much is recognized in June, July and August:
$180K paid on July 1 for one year’s rent.
Receives a June utility bill on July 2 for $4.56K, pays in July.
Purchases office supplies on account for $12.6K during July. Pays
$5.5K in July and $7.1K in August. Supplies on hand were $2.4K on
7/1, $9.2K on 7/31 and $2.9K on 8/31.
Pays $7.2K on July 15 for property taxes for the calendar year.
Pays $2K on July 15 for a van to be delivered in September.
Advances an employee $4.5K on July 25 from August salary.
Pays $6.6K on July 25 for ads that appeared during June.
Problem 3.31:
Prepare journal entries for transaction and yearend:
12/2/6: Swap a $6K account payable for a note due on 1/30/7 with 10%
annual interest
9/1/6: Sell a two-year premium for $18K in advance
10/1/6: Buy a machine for $40K, $4K expected salvage in 4 years
7/1/6: Buy a car for $24K, $3K expected salvage in 3 years
12/2/6: Prepay $12K to rent an office for 3 months starting 12/1
11/1/6: (Start business on 11/1.) Buy supplies of $7K on account. Pay
$5K by yearend. Inventory of $1.5K at yearend.
Problem 3.33: Prepare I/S and B/S on 12/31
Purchase inventory on account for $1,100K.
Sell on account for $2,000K, cost of goods sold is
$1,200K.
Collect $1,400K from accounts.
Pay inventory suppliers $950K for payables.
Pay employees $625K for services during year.
Repaid the note in 2.29 with interest: $80K note, 6%
annual interest, signed on 12/31/12, due 6/30/13.
Recognize interest on long-term bank note in 2.29:
$300K note, 8% ann. interest, signed 12/31/12, first
interest to be paid on 1/1/14, principal to be paid in
five years.
Recognize expired insurance from 2.29: 1 year
prepaid policy, $12K, signed 12/31/12, ending
12/31/13.
Recognize depreciation from 2.29. Building cost
$450K, expected life 25 years, equip cost $80K,
expected life 5 years.
Estimate taxes owed at 40% of pretax income.
Pr. 3.33
Cash Accounts Receivable Prepaid Insurance
343.00 0.00 12.00
Inventory Land and Building Equipment
275.00 500.00 80.00
Accumulated Deprec. Accounts Payable Equip. Note Payable
30.00 80.00
Interest Payable Bank Loan Payable Contributed Capital
300.00 800.00
Retained Earnings Sales Revenue Cost of Goods Sold
Salary Expense Interest Expense Depreciation Expense
Income Tax Expense
Problem 2.30: Prepare B/S on 1/31
1. Issue Ps500K of common stock.
2. Purchase patent for Ps20K, Ps4 to register.
3. Order merchandise for Ps200K.
4. Sign a lease for Ps30K/mo starting 2/1,
prepay Ps60K.
5. Receive merchandise in 3, to be paid later.
6. Return Ps8K of defective merchandise in 3.
7. Pay off Ps160K of payable from 3, less 2%.
8. Pay Ps12K for insurance starting 2/1.
Problem 3.34: Prepare I/S and B/S on 2/28/8
2/1: Borrow Ps90K and purchase equipment for
Ps90K. Loan is 12%/year, payable on 2/1/9.
Purchase Ps217.9K of inventory on account.
Sell merchandise costing Ps162.4K for Ps62.9K
cash and Ps194.6K on account. (Cost of goods sold
will be recorded later)
Pay employees Ps32.4K for services during Feb.
Pay utilities of Ps2.7K for Feb. services.
Collect accounts of Ps84.6K from customers.
Pay accounts payable of Ps210K, less 2%, and
Ps29K at full amount.
Adjusting entries on 2/28:
Owe employees Ps6.7K for February services since
last pay check.
Owe utilities of Ps0.8K since last payment
Equipment purchased on 2/1 has 5 year life and no
salvage.
Prepaid rent from 2.30 is used up.
Prepaid insurance from 2.30 is used up.
Patent in 2.30 is amortized over 60 months.
Recognize interest on 2/1 loan.
Calculate taxes owed at 30% of pretax income.
Problem 4.26: Southwest Airlines
Change
Cash + 40
Accounts Receivable - 15
Inventories + 15
Prepayments + 17
Property, Plant and Equipment + 1,135
Accumulated Depreciation + 264
Other Noncurrent Assets +9
Accounts Payable -1
Other Current Liabilities + 115
Long-Term Debt + 244
Other Nonoperating Liabilities + 140
Common Stock + 97
Retained Earnings + 341
Note: Net income was $474. Southwest did not sell any Property, Plant & Equipment.
Green Mountain Coffee (from previous edition)
Change
Cash + 74
Accounts Receivable + 2,231
Inventories - 59
Prepayments - 475
Property Plant and Equipment + 2,129
Accumulated Depreciation + 1,038
Other Noncurrent Assets + 434
Accounts Payable + 1,574
Other Current Liabilities + 560
Bonds Payable + 2,827
Common Stock - 5,878
Retained Earnings + 4,213
Note: No dividends, sold equipment for 538 costing 2,468, with accumulated depreciation of
1,930. Purchased equipment for 4,597. Recorded depreciation of 2,968.
Problem 4.37: Flight Training
1/1 12/31 Chg.
Cash 583 159 - 424
Accounts Receivable 4,874 6,545 1,671
Inventories 2,514 5,106 2,592
Prepayments 829 665 - 164
Property, Plant & Equipment 76,975 106,529 29,554
Less: Accumulated Depreciation - 8,843 - 17,231 - 8,388
Other (Investing) Assets 665 470 - 195
77,597 102,243 24,646
Accounts Payable 6,279 12,428 6,149
Other Current (Operating) Liabilities 12,124 12,903 779
Notes Payable 945 0 - 945
Current Portion of Long-Term Debt 7,018 60,590 53,572
Noncurrent Portion of Long-Term Debt 41,021 0 - 41,021
Other Noncurrent (Operating) Liabilities 900 0 - 900
Contributed Capital 5,508 16,351 10,843
Retained Earnings 3,802 (29) - 3,831
77,597 102,243 24,646
Note: Net Income of -$3,831. No dividends or sales of PP&E. (Noncurrent portion of Long-
Term Debt was reclassified to current due to covenant violation.)
Steps for preparing the statement of cash flows (numbers based on problem 4.34):
1. Compute changes in each balance sheet account.
1/1 12/31 Chg.
Cash 52 58 6
Accounts Receivable 93 106 13
Inventory 151 162 11
Land 30 30 0
Buildings and Equipment 790 830 40
Accumulated Depreciation 460 504 44
Accounts Payable 136 141 5
Interest Payable 10 8 -2
Mortgage Payable 120 109 -11
Contributed Capital 250 250 0
Retained Earnings 140 174 34
Other: Net income = 44, Dividends = 10, Depreciation Expense = 54,
Sold for 5 machinery originally costing 15 with accumulated depreciation of 10 (no gain/loss)
Purchased building and equipment for 55
2. Fill in the indirect format worksheet for each of the changes other than PP&E and
accumulated depreciation. Use the Balance Sheet Accounts on the Statement of Cash Flows
worksheet if you don’t know where something goes. Check to make sure you have picked up
each account. I have filled in the numbers for this step in italics in the SCF below. You
should have blanks on the SCF for ―Investments in PP&E,‖ ―Proceeds from Sale of PP&E,‖
―Depreciation‖ and ―Gain on Sale of PP&E.‖
3. Recreate the PP&E journal entries for the purchase of PP&E, depreciation for the period and
dispositions of PP&E:
Buildings and Equipment 55
Cash 55
Depreciation Expense (generally) 54
Accumulated Depreciation 54
Cash (proceeds from sale) 5
Accumulated Depreciation (accum. deprec. on assets sold) 10
Loss on Sale of PP&E (Proceeds - BV) 0
Property, Plant and Equipment (historical cost of assets sold) 15
In some cases you may have to figure out some missing numbers in the journal entries. To
do that, fill in any pieces you know and solve t-accounts for missing pieces. In 4-34, you
knew that you sold for 5 machinery costing 15 with accumulated depreciation of 10. You
could solve the t-accounts for buildings and equipment purchased.
4. Fill in the last four numbers (in bold below):
the credit to cash in the 1st journal entry goes to ―Investments in PP&E‖ in Investing. If
part of the purchase was on credit, it is only the credit to cash that goes on the SCF.
the credit to accumulated depreciation in the 2nd journal entry goes to ―Depreciation‖ in
Operations.
the cash debit in the 3rd entry goes to ―Proceeds from Sales of PP&E‖ in Investing.
the loss debit (or gain credit) in the 3rd entry goes to ―Gain on Sale of PP&E‖ in Oper’s.
Indirect Format (most common)
Cash From Operations
Net Income 44
+ Depreciation + 54
- Gain on Sale of PP&E (or other investments) 0
- Increase in Accounts Receivable - 13
- Increase in Inventories - 11
- Increase in Other Current Assets 0
+ Increase in Accounts Payable + 5
+ Increase in Other Current Liabilities -2
+ Increase in Deferred Income Taxes 0
Net Cash From Operations 77
Cash From Investing
- Investments in Securities 0
+ Proceeds from Sales of Securities 0
- Investments in Property, Plant and Equipment - 55
+ Proceeds from Sales of Property, Plant and Equipment +5
- Investments in Other Noncurrent Assets 0
+ Proceeds from Sales of Other Noncurrent Assets 0
Net Cash from Investing - 50
Cash From Financing
+ Issuance of Notes Payable 0
- Repayments of Notes Payable 0
+ Issuance of Long-Term Debt 0
- Repayments of Long-Term Debt -11
+ Issuance of Common Stock 0
- Dividends Paid - 10
- Repurchase of Common Stock 0
Net Cash from Financing - 21
Net Change in Cash 6
Problem 6.21
Yr. Sales 6 7 8 9 10 Total
6 340.0 1.8 5.8 3.0 10.6
7 450.0 2.5 8.2 3.4 14.1
8 580.0 2.9 12.7 3.3 17.9
$1,370.0 1.8 8.3 14.1 16.1 3.3 42.6
What if at 12/31/7 $300 remains in A/R and you estimate $18.0
is still likely to go bad?
What if only $8.0 is still likely to go bad?
Problem 7.36
1. Acquire raw material of $667.2K on account.
2. Put raw material of $689.1K into production.
3. Pay salaries, $432.8K for factory, $89.7K for sales and
$22.3K for administration.
4. Depreciation of $182.9K for factory, $87.4K for selling and
$12.2K for administration.
5. Incur other costs of $218.5K for factory, $55.1K for selling
and $34.7K for administration.
6. Complete goods costing $1,564.5K.
7. Sell $2,400.0K on account.
8. Ending finished goods inventory is $210.6K. Beginning
finished goods inventory was $182.7K.
Formats for the Statement of Cash Flows
Indirect Format
Cash From Operations
Net Income
+ Depreciation
- Gain on Sale of PP&E (or other investments)
- Increase in Accounts Receivable
- Increase in Inventories
- Increase in Other Current Assets
+ Increase in Accounts Payable
+ Increase in Other Current Liabilities
+ Increase in Deferred Income Taxes
Net Cash From Operations
Cash From Investing
- Investments in Securities
+ Proceeds from Sales of Securities
- Investments in Property, Plant and Equipment
+ Proceeds from Sales of Property, Plant and Equipment
- Investments in Other Noncurrent Assets
+ Proceeds from Sales of Other Noncurrent Assets
Net Cash from Investing
Cash From Financing
+ Issuance of Notes Payable
- Repayments of Notes Payable
+ Issuance of Long-Term Debt
- Repayments of Long-Term Debt
+ Issuance of Common Stock
- Dividends Paid
- Repurchase of Common Stock
Net Cash from Financing
Net Change in Cash
Formats for the Statement of Cash Flows
Indirect Format
Cash From Operations
Net Income
+ Depreciation
- Gain on Sale of PP&E (or other investments)
- Increase in Accounts Receivable
- Increase in Inventories
- Increase in Other Current Assets
+ Increase in Accounts Payable
+ Increase in Other Current Liabilities
+ Increase in Deferred Income Taxes
Net Cash From Operations
Cash From Investing
- Investments in Securities
+ Proceeds from Sales of Securities
- Investments in Property, Plant and Equipment
+ Proceeds from Sales of Property, Plant and Equipment
- Investments in Other Noncurrent Assets
+ Proceeds from Sales of Other Noncurrent Assets
Net Cash from Investing
Cash From Financing
+ Issuance of Notes Payable
- Repayments of Notes Payable
+ Issuance of Long-Term Debt
- Repayments of Long-Term Debt
+ Issuance of Common Stock
- Dividends Paid
- Repurchase of Common Stock
Net Cash from Financing
Net Change in Cash