ACC_206_Week_One_Assignment_WP

  

ACC 206 Week Assignment

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

1. Critical Thinking Question:

Answer the following questions:
Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed? 

2. Classification of activities
Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity. 

a. ________ Received $80,000 from the sale of land. 

b. ________ Received $3,200 from cash sales. 

c. ________ Paid a $5,000 dividend. 

d. ________ Purchased $8,800 of merchandise for cash. 

e. ________ Received $100,000 from the issuance of common stock. 

f. ________ Paid $1,200 of interest on a note payable. 

g. ________ Acquired a new laser printer by paying $650. 

h. ________ Acquired a $400,000 building by signing a $400,000 mortgage note.

3. Overview of direct and indirect methods 

Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.

a. Both the direct and indirect methods will produce the same cash flow from operating activities. 

b. Depreciation expense is added back to net income when the indirect method is used. 

c. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported. 

d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed. 

e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used. 

4. Equipment transaction and cash flow reporting 

   

Dec. 31, 20X4 

Dec. 31, 20X3 

 

Property, Plant & Equipment:

Land 

$94,000 

$94,000 

 

Equipment 

652,000

527,000

 

Less: Accumulated depreciation 

-316,000

-341,000

New equipment purchased during 20x4 totaled $280,000. The 20x4 income statement disclosed equipment depreciation expense of $41,000 and a $9,000 loss on the sale of equipment.

a. Determine the cost and accumulated depreciation of the equipment sold during 20X4. 

b. Determine the selling price of the equipment sold. 

c. Show how the sale of equipment would appear on a statement of cash flows prepared by using the indirect method. 

5. Cash flow information: Direct and indirect methods
The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company's current accounts:

   

20X5 

20X4

Increase / Decrease) 

 

Current assets 

 

Cash 

$55,400 

$35,200 

$20,200

 

Accounts receivable (net) 

83,800

88,000

-4,200

 

Inventory 

243,400

233,800

9,600

 

Prepaid expenses 

25,400

24,200

1,200

    

 

Current liabilities 

 

Accounts payable 

$123,600 

$140,600 

($17,000)

 

Taxes payable 

43,600

49,200

-5,600

 

Interest payable 

9,000

6,400

2,600

 

Accrued liabilities 

38,800

60,400

-21,600

 

Note payable 

44,000

— 

44,000

    

The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities relate to the firm's selling and administrative expenses. The company's condensed income statement follows.

  

SIGN   GRAPHICS INC.

 

Income   Statement

 

for the   Year Ended December 31, 20x5

 

 

Sales

$713,800 

 

Less: Cost of goods sold

323,000

 

Gross profit

$390,800 

 

 

Less: Selling & administrative expenses

$186,000 

 

Depreciation expense

17,000

 

Interest expense 

27,000

230,000

 

 

Add: gain on sale of land

$160,800 

 

21,800

 

Income before taxes

$182,600 

 

Income taxes

36,800

 

Net income

$145,800 

 

Other data: 

1. Long-term investments were purchased for cash at a cost of $74,600. 

2. Cash proceeds from the sale of land totaled $76,200. 

3. Store equipment of $44,000 was purchased by signing a short-term note payable. Also, a $150,000 telecommunications system was acquired by issuing 3,000 shares of preferred stock. 

4. A long-term note of $49,400 was repaid. 

5. Twenty thousand shares of common stock were issued at $5.19 per share. 

6. The company paid cash dividends amounting to $128,600. 

Instructions: 

a. Prepare the operating activities section of the company's statement of cash flows, assuming use of: 

1. The direct method. 

2. The indirect method. 

b. Prepare the investing and financing activities sections of the statement of cash flows.