Intermediate Accounting/Week 2

Problem	Change Amount to:	Applicable Transaction
Ex 4-16	240000	Customers
	10000	Interest on notes receivable
	32000	Principle on note receivable
	15000	Sale of investments
	60000	Proceeds from note payable
	-90000	Purchase of inventory
	-20000	Interest on note payable
	-40000	Purchase of equipment
	30000	Salaries to employees
	-42000	Principle on note payable
	-52000	Payment of dividends to shareholders
Ex 4-19
		Financing	Investing	Operating
		270000
			-25000
				
				
				-12000
				-9000
				-55000
				36000
				
Ex 4-22
	950	Net income
	210	Depreciation expense
	Changed ending balance
	685	Accounts receivable
	670	Inventory
	65	Prepaid insurance
	2200	Plant and equipment
	-810	Accumulated depreciation
	270	Accounts payable
	280	Payables for admin
	230	Income taxes payable
	820	Note payable
	945	Common stock
	485	Retained earnings
Ex 5-3			2011	2012
		Installment Sales	390000	490000
		Cost of Installment Sales	270000	290000
		Cash collections on sales during:
		2011	240000	90000
		2012		300000
Ex 5-10
	($ in millions)	2011	2012	2013
	Contract price	$340	$340	$340
	Actual costs to date	70	150	200
	Estimated costs to complete	150	90	0
	Total estimated costs	220	240	200
	Estimated gross profit (actual in 2013)	$120	$100	$140
Case 5-23
	Net income	16000
	Short term note	5000
	Bonds interest rate	0.08
	Cash balance	15000
	Profit margin on sales	0.05
	Return on assets	0.075
	Gross profit margin	0.4
	Inventory turnover ratio	6
	Receivables turnover ratio	25
	Acid test ratio	0.9
	Current ratio	2
	Return on shareholders equity	0.1
	Debt to equity ratio	0.33
	Times interest earned	12

Exercise 4-16

Bluebonnet Bakers

Statement of Cash Flows

For the Year Ended December 31, 2011

Cash flows from operating activities:

Collections from customers

Interest on note receivable

Purchase of inventory

Interest on note payable

Payment of salaries

Net cash flows from operating activities $

Cash flows from investing activities:

Collection of note receivable

Sale of investments

Purchase of equipment

Net cash flows from investing activities

Cash flows from financing activities:

Proceeds from note payable

Payment of note payable

Payment of dividends

Net cash flows from financing activities

Net increase in cash

Cash and cash equivalents, January 1

Cash and cash equivalents, December 31 $

Exercise 4-19

Requirement 1 (Completed)

Financing Investing Operating

1. Changed

2. ( Changed

3. (

4. (

5. Changed

6. Changed

7. Changed

8. Changed

9. (

__________ __________ __________

$ =

Requirement 2

Wainwright Corporation

Statement of Cash Flows

For the Month Ended March 31, 2011

Cash flows from operating activities:

Collections from customers

Payment of rent

Payment of one-year insurance premium

Payment to suppliers of merchandise for sale

Net cash flows from operating activities $

Cash flows from investing activities:

Purchase of equipment

Net cash flows from investing activities

Cash flows from financing activities:

Issuance of common stock

Net cash flows from financing activities

Net increase in cash

Cash and cash equivalents, March 1

Cash and cash equivalents, March 31 $

Noncash investing and financing activities:

Acquired $40,000 of equipment by paying cash and issuing a note as follows: Cost of equipment $

Cash paid

Note issued $

Exercise 4-22

Tiger Enterprises

Statement of Cash Flows

For the Year Ended December 31, 2011

($ in thousands)

Cash flows from operating activities:

Net income

Adjustments for noncash effects:

Depreciation expense

Changes in operating assets and liabilities:

Decrease in accounts receivable

Increase in inventory

Increase in prepaid insurance

Decrease in accounts payable

Decrease in administrative and other payables

Increase in income taxes payable

Net cash flows from operating activities $

Cash flows from investing activities:

Purchase of plant and equipment

Cash flows from financing activities:

Proceeds from issuance of common stock

Proceeds from note payable

Payment of dividends (1)

Net cash flows from financing activities

Net increase in cash

Cash, January 1

Cash, December 31 $

(1)

Retained earnings, beginning $

+ Net income

- Dividends x x = $

Retained earnings, ending $

Judgment Case 4-9

Financial Statement

Presentation

Situation Treatment (a-g) (CO, BC, or RE)

1.

2.

3.

4.

5.

6.

7. 8.

Exercise 5-3

2011 To record installment sales

Installment receivables

Inventory

Deferred gross profit

2011 To record cash collections from installment sales

Cash

Installment receivables

2011 To recognize gross profit from installment sales

Deferred gross profit

Realized gross profit

2012 To record installment sales

Installment receivables

Inventory

Deferred gross profit

2012 To record cash collections from installment sales

Cash

Installment receivables

2012 To recognize gross profit from installment sales

Deferred gross profit

Realized gross profit

Exercise 5-10

Requirement 1

($ in millions) 2011 2012 2013

Contract price

Actual costs to date

Estimated costs to complete

Total estimated costs

Estimated gross profit (actual in 2013) $

Gross profit (loss) recognition:

2011: $

=

$

2012:

=

2013:

Requirement 2

2011:

2012:

2013:

Requirement 3

Year	Gross profit (loss) recognized
2011
2012
2013
Total project income	$

Exercise 5-10 (concluded)

Requirement 4

2011:

Revenue: $

Cost: $

Gross profit: $

2012:

Revenue:

Cost:

Gross profit: $

2013:

Revenue:

Cost:

Gross profit: $

Requirement 5

2012: $

=

$

Integrating Case 5-23

Balance Sheet

Assets

Cash $ 15,000 Accounts receivable (net) (e) Inventory (d) Prepaid expenses and other current assets (i) Current assets (h) Property, plant, and equipment (net) (j) $ (b) Liabilities and Shareholders’ Equity Accounts payable $ (g) Short-term notes 5,000 Current liabilities (f) Bonds payable (l) Shareholders’ equity (k) $ (b)

Income Statement

Sales (a) Cost of goods sold (c) Gross profit (c) Operating expenses (o) Interest expense (m) Tax expense (n) Net income $

Case 5-23 (concluded)

Calculations ($ in 000s):

a. Profit margin on sales = Net income ÷ Sales = 5%

For example:

Net income = 17000

17000/X = .05

Cross multiply

17000

_____ =.05

X

17000 = .05X

Divide both sides by .05

X = 17000/.05

X = 340,000

b. Return on assets = Net income ÷ Total assets = 7.5%

For example:

Net income = 17000

17000/X = .075

Cross multiply

17000 = .075X

Divide both sides by .075

X = 17000/.075

X = 226,666

c. Gross profit margin = Gross profit ÷ Sales = 40% Cost of goods sold = Sales – Gross profit =

d. Inventory turnover ratio = Cost of goods sold ÷ Inventory = 6

e. Receivables turnover ratio = Sales ÷ Accounts receivable = 25

f. Acid-test ratio = Cash + AR + ST Investments ÷ Current liabilities = .9

g. Accounts payable = Current liabilities – Short-term notes = $

h. Current ratio = Current assets ÷ Current liabilities = 2

i. Prepaid expenses and other current assets = Current assets – (Cash + AR + Inventory) = $

j. Property, plant, and equipment = Total assets – Current assets =

k. Return on shareholders’ equity = Net income ÷ Shareholders’ equity =10%

l. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = Bonds payable = Total liabilities – Current liabilities =

m. Interest expense = 8% x (Short-term notes + Bonds ) Interest expense =

n Times interest earned ratio = (Net income + Interest +Taxes) ÷ Interest = 12 Times interest earned ratio = Times interest earned ratio = Tax expense = $

o. Operating expenses = (Sales – Cost of goods sold – Interest expense – Tax expense) – Net income =