Accounting.

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CONTEXT

Toshiro group Inc is a fast growing global conglomerate. He has hired some bright graduates from EU to help him modernise the company. He must close his consolidated accounts for December 2019 and do some planning for 2020 so all this can be presented to the board.

You have been recruited as a consultant by the CEO at the head office to help him. You are recent graduate from EU Business School. Your first assignment is to help the various fi- nance heads and provide all details in a report. The CEO, Toshiro is very busy and fully ex- pects you to help him get through this busy period and show your deep insights about finance and accounting.

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ANNEX 1 – The CEO’s questions.

1. The income statement below was prepared by a new and inexperienced employee in the accounting department of Toshiro Space Ltd a new California based busi- ness venture in the group :

TOSHIRO SPACE LTD

Income Statement

For the Year Ended December 31, 2019

Net sales ............................................................................... $9,800,000 Gain on sale of treasury stock .............................................. 47,000 Excess of issuance price over par value of capital stock ...... 640,000 Prior period adjustment (net of income taxes) ...................... 90,000 Extraordinary gain (net of income taxes) ................................ 50,000

Total revenue ...................................................................... $10,627,000

Less:

Cost of goods sold .......................................................... $5,000,000 Selling expenses ............................................................ 1,310,000 General and administrative expenses ............................ 942,000 Loss from settlement of litigation .................................... 12,000 Income taxes on continuing operations .......................... 810,000 Operating loss on discontinued operations (net of income tax benefit) ...................................... 170,000 Loss on disposal of discontinued operations (net of income tax benefit) ...................................... 390,000 Cumulative effect of change in accounting principle (net of income tax benefit) ........................ 92,000 Dividends declared on capital stock ............................... 400,000 Total costs and expenses ....................................... 9,126,000 Net income ...................................................................... $1,501,000

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INSTRUCTIONS a. Prepare a corrected income statement for the year ended December 31, 2019, include

at the bottom of your income statement all appropriate earnings per share figures. As- sume that throughout the year the company had outstanding a weighted average of 100,000 shares of a single class of capital stock of par value $1. Marks i) Income statement 20% ii) EPS 5%

b. Prepare a statement of retained earnings for 2019. (As originally reported, retained

earnings at December 31, 2018, amount to $2,000,000.) 5%

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2. Laura a recent EU Geneva graduate is the CFO at a Toshiro fashions Ltd based in Lisbon and is trying to prepare a cash budget for Q1 2021

She is confident of the following information.

• She know the Bank balance at 1 January 2020 which is $50,0000 • Each month 70% of sales are for cash and 30% on credit. The funds for credit sales

are received the following month. • The Company buys inventory/purchases on one months credit. It pays for purchases

the following month. • The rent is $8,000 for the year and is paid quarterly, in the first week of each quarter. • Salaries are paid monthly and the annual payroll is $24,000 • Depreciation is $500 per month • Insurance for the building for the year is paid in January. - $1000

She has following information from the budget for expected sales and purchases (all numbers are $ the group reporting currency):

DEC JAN FEB MAR Sales 20,000 25,000 30,000 20,000 Purchases 15,000 18,000 20,000 14,000

INSTRUCTIONS

Given the above information please prepare a cash budget by completing the template provided to calculate the funds in the bank at 31.3.2020. 20%

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Toshiro fashions – CASH BUDGET

JAN FEB MAR INFLOWS

OUTFLOWS

NET CASHFLOWS Bank balance at beginning of month

50,000

Bank balance at end month

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3. Toshiro Tools Ltd sells car parts through an online platform. Mkyta a very bright graduate from EU has been given comparative income statements and balance sheets for the past two years so that he can prepare a cash flow statement. He has also been given following additional information Additional Information The following information regarding the company’s operations in 2019 is available from the company’s accounting records: a. Early in the year the company declared and paid a $4,000 cash dividend. b. During the year marketable securities costing $15,000 were sold for $14,000

cash, resulting in a $1,000 non operating loss. c. The company purchased plant assets for $20,000, paying $2,000 in cash and

issuing a note payable for the $18,000 balance. d. During the year the company repaid a $10,000 note payable, but incurred an

additional $18,000 in long-term debt as described in c. e. The owners invested $15,000 cash in the business as a condition of the new

loans described in d. TOSHIRO TOOLS Income statement for year 2018 2019

TOSHIRO TOOLS Balance sheet as at 31 December 2018 2019

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INSTRUCTIONS

a) Prepare a formal statement of cash flows for 2015 to be presented by the indirect

method. Please show workings. You may use template provided Workings 25% and final statement 15%

b) Explain how Toshiro tools Ltd., achieved positive cash flows from operating activities, despite incurring a net loss for the year. 5%

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WORKINGS

Statement of Cash Flows Worksheet

Cash Source Flow Adjust- Adjusted Classi- Change or use? Effect ments Effect fication Assets (except cash and cash equivalents) Current assets: ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ ______ _________ Noncurrent assets: ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ _______ ______ _________ Liabilities, Contra-Assets, and Stockholders’ Equity Contra-assets: ................................................ ______ ________ ______ ______ _________ Current liabilities: ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ ______ _________ Noncurrent liabilities: ................................................ ______ ________ ______ ______ _________ ................................................ ______ ________ ______ ______ _________ Stockholders’ equity: ................................................ ______ ________ ______ ______ _________ Retained earnings ................................................ ______ ________ ______ ______ _________ ............................................. ______ ________ ______ ______ _________ Additional Entries ................................................ ______ ______ _________

.......................................... ______ ______ _________

Total (net cash flow) ...................

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