5 Managerial Accounting Questions due Saturday, August 16th at 12:00PM CDT

Exercise 2: Cash Flows from Operating Activities: Indirect Method

The condensed single-step income statement for the year ended December 31, 2014, of Conti Chemical Company, a distributor of farm fertilizers and herbicides, follows.

Sales $26,000,000

Less: Cost of goods sold $15,200,000

Operating expenses (including depreciation of $1,640,000) 7,600,000

Income taxes expense 800,000 23,600,000

$2,400,000

Selected accounts from Conti Chemical’s balance sheets for 2014 and 2013 follow.

2014 2013

Accounts receivable $4,800,000 $3,400,000

Inventory 1,680,000 2,040,000

Prepaid expenses 520,000 360,000

Accounts payable 120,000 200,000

Income taxes available 280,000 240,000

Prepare a schedule of cash flows from operating activities using the indirect method.

Exercise 8: Preparing the Statement of cash Flows: Indirect Method

Keeper Cooperation’s income statement for the year ended June 30, 2014, and its comparative balance sheets for June 30, 2014 and 2013 follow.

Keeper Corporation

Income Statement

For the Year Ended June 30, 2014

Sales $234,000

Cost of goods sold 156,000

Gross Margin $78,000

Operating expenses 45,000

Operating income $33,000

Interest expense 2,800

Income before income taxes $30,200

Income taxes expense 12,300

Net income $17,900

Keeper Corporation

Comparative Balance Sheets

June 30, 2014 and 2013

2014 2013

Assets

Cash $69,900 $12,500

Accounts receivable (net) 21,000 26,000

Inventory 43,000 48,400

Prepaid Expenses 3,200 2,600

Furniture 55,000 60,000

Accumulated depreciation- furniture (9,000) (5,000)

Total Assets: $183,500 $144,500

Liabilities and Stockholders’ Equity

Accounts payable $13,000 $14,000

Income taxes payable 1,200 1,800

Notes payable (long-term) 37,000 35,000

Common stock, $10 par value 115,000 90,000

Retained earnings 17,300 3,700

Total liabilities and stockholders’ equity $183,500 $144,500

Keeper issued a $22,000 note payable for purchase of furniture; sold at carrying value furniture that cost $27,000 with accumulated depreciation of $15,300; recorded depreciation on the furniture for the year, $19,300; repaid a note in the amount of $28,000; issued $25,000 of common stock at par value; and paid dividends of $4,300. Prepare Keeper’s statement of cash flows for the year 2014 using the indirect method.

Exercise 9:

In 2014, Andy’s Corporation had year-end assets of $2,400,000 sales of $3,300,000. Net income of $280,000, net cash flows from operating activities of $390,000, dividends of $120,000, purchases of plant assets of $500,000, and sales of plant assets of $90,000. In 2013, year-end assets were $2,100,000. Calculate free cash flow and the cash-generating efficiency ratios of cash flow yield, cash flows to sales, and cash flows to assets (Round to one decimal or the nearest tenth of a percent.)

Problem 1: Classification of Cash Flow Transaction

Analyze each transaction listed in the table that follows and place X’s in the appropriate columns to indicate the transaction’s classification and its effect on cash flows using the indirect method.

	Cash Flow Classification				Effect on Cash Flows
Transaction	Operating activity	Investing activity	Financing activity	Noncash transaction	Increase	Decrease	No effect
1. Paid a cash dividend
2. Decreased accounts receivable
3. Increased inventory
3. Incurred a net loss.
5. Declared and issued a stock dividend
6. Retired long-term debt with cash
7. Sold available-for-sales securities at a loss.
8. Issued stock for equipment.
9. Decreased prepaid insurance.
10. Purcased treasury stock with cash.
11 Retired a fully depreciated truck (no gain or loss).
12. Increased interest payable.
13. Decreased dividends receivable on investment
14. Sold treasury stock.
15. Increased income taxes payable.
16. Transferred cash to money market account.
17. Purchased land and building with a mortgage.

Problem 3: Statement of Cash Flows: Indirect Method

Chaplin Arts, Inc.’s comparative balance sheets for December 31, 2014 and 2013, follow:

Chaplin Arts, Inc.

Comparative Balance Sheets

December 31, 2014 and 2013

Assets	2014	2013
Cash	$94,560	$27,360
Accounts receivable (net)	102,340	75,430
Inventory	112,890	137,890
Prepaid expenses	-	20,000
Land	25,000	-
Building	117,000	-
Accumulated depreciation-building	-15,000	-
Equipment	33,000	34,000
Accumulated depreciation-equipment	-14,400	-24,000
Patients	4,000	6,000
Total assets	$479,380	$276,680

Liabilities and Stockholders' Equity
Accounts payable	$10,750	$36,750
Notes payable (current)	10,000	-
Accrued liabilities	-	12,300
Mortgage payable	162,000	-
Common stock, $10 Par Value	180,000	150,000
Additional paid-in capital	57,200	37,200
Retained Earnings	59,430	40,430
Total liabilities and stockholders' equity	$479,380	$276,680

The following additional information about Chaplin Art’s operations during 2013 is available: (a) net income, $28,000; (b) building and equipment depreciation expense amounts, $15,000 and $3,000, respectively; (c) equipment that cost $13,500 with accumulated depreciation of $12,500 sold at a gain of $5,300; (d) equipment purchases, $12,500; (e) patent amortization, $3,000; purchase of patent, $1,000; (f) funds borrowed by issuing notes payable, $25,000; notes payable repaid, $15,000; (g) land and building purchased for $162,000 by signing a mortgage for the total cost; (h) 1,500 shares of $20 par value common stock issued for a total of $50,000; and (i) paid cash dividends, $9,000.

REQUIRED:

1. Using the indirect method, prepare of a statement of cash flows for Chaplin Arts.

2. Why did Chaplin Arts have an increase in cash of $67,200 when it recorded net income of only $28,000? Discuss and interpret.

3. Compute and assess cash flow yield and free cash flow for 2014. (Round to one decimal place.) What is your assessment of Chaplin Arts’ cash-generating ability?