Accounting 221 Homework 2-8

wk_3_hw_problems.xls

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Problem 1

Examine the listed business activities and decide if each is to be classified as a:
	Cash flow from operating activity
	Cash flow from investing activity
	Cash flow from financing activity
	Non-cash investing/financing activity

(a)	Issue common stock for land
(b)	Issue common stock for cash
(c)	Pay interest on loan
(d)	Sell goods for cash
(e)	Pay employee salaries
(f)	Pay dividends to common shareholders
(g)	Receive dividend on an investment
(h)	Obtain proceeds of long-term loan
(i)	Acquire treasury shares
(j)	Purchase land for cash
(k)	Buy inventory for resale

&R&"Myriad Web Pro,Bold"&20B-16.06

B-16.06

Worksheet 1


(a)	Issue common stock for land	Non-cash investing/financing activity
(b)	Issue common stock for cash
(c)	Pay interest on loan
(d)	Sell goods for cash
(e)	Pay employee salaries
(f)	Pay dividends to common shareholders
(g)	Receive dividend on an investment
(h)	Obtain proceeds of long-term loan
(i)	Acquire treasury shares
(j)	Purchase land for cash
(k)	Buy inventory for resale

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-16.06

B-16.06

Problem 2

The accountant for Rimmerex Corporation used a spreadsheet to prepare information needed to prepare the statement of cash flows for the year ending December 31, 20X5. However, the data were accidentally sorted alphabetically into the following listing of items. To compound the problem, the "add" and "subtract" notations for each line item were also deleted. Review the information, and prepare a correct presentation, using the indirect approach. The beginning cash balance was $63,800, and the ending cash balance was $415,000.

	Bought building by issuing common stock	$ 850,000
	Decrease in accounts payable	34,000
	Decrease in accounts receivable	21,000
	Depreciation expense	68,000
	Dividends on common	50,000
	Gain on sale of land	20,000
	Increase in income taxes payable	7,000
	Increase in inventory	27,800
	Increase in prepaid insurance	3,000
	Net income	215,000
	Purchase of equipment	75,000
	Repayment of long-term note payable	180,000
	Sale of land	430,000

&L&"Arial,Bold"&20 &R&"Myriad Web Pro,Bold"&20B-16.10

B-16.10

Worksheet 2



RIMMEREX CORPORATION
Statement of Cash Flows
For the Year Ending December 31, 20X5


Cash flows from operating activities:











Cash flows from investing activities:




Cash flows from financing activities:



Net increase in cash		$ -
Cash balance at January 1, 20X5		-
Cash balance at December 31, 20X5		$ -
	-----------------------------------------------------------------------------------
Noncash investing/financing activities:
		$ -

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-16.10

B-16.10

Problem 3

Ozark Corporation reported net income of $100,000 for 20X5. The income statement revealed sales of $1,000,000; gross profit of $520,000; selling and administrative costs of $340,000; interest expense of $20,000; and income taxes of $60,000. The selling and administrative expenses included $25,000 for depreciation. No equipment was sold during the year. Equipment purchases were made with cash. Prepaid insurance included in the balance sheet related to administrative costs. All accounts payable included in the balance sheet relate to inventory purchases. The change in retained earnings is attributable to net income and dividends. The increase in common stock and additional paid-in capital is due to issuing additional shares for cash.

Using the indirect approach, prepare a statement of cash flows for Ozark for the year ending December 31, 20X5. Comparative balance sheets for Ozark follow.

	OZARK CORPORATION
	Balance Sheet
	December 31, 20X4 and 20X5


		Assets	20X5	20X4
		Cash	$ 458,700	$ 471,450
		Accounts receivable	199,250	171,500
		Inventories	248,600	278,800
		Prepaid insurance	13,000	11,000
		Land	250,000	250,000
		Building and equipment	1,500,000	1,300,000
		Less: Accumulated depreciation	(205,000)	(180,000)
		Total assets	$ 2,464,550	$ 2,302,750

		Liabilities
		Accounts payable	$ 85,700	$ 93,400
		Interest payable	10,500	15,000
		Income taxes payable	22,000	8,000
		Stockholders' equity
		Common stock	710,000	700,000
		Paid in capital in excess of par	990,000	900,000
		Retained earnings	646,350	586,350
		Total liabilities and equity	$ 2,464,550	$ 2,302,750

&R&"Myriad Web Pro,Bold"&20B-16.14

B-16.14

Worksheet 3



OZARK CORPORATION
Statement of Cash Flows (Indirect Approach)
For the Year Ending December 31, 20X5

Cash flows from operating activities:
	Net income		$ -
	Add (deduct) noncash effects on operating income
	Depreciation expense	$ -
	Increase in accounts receivable	-
	Decrease in inventory	-
	Increase in prepaid insurance	-
	Decrease in accounts payable	-
	Decrease in interest payble	-
	Increase in income taxes payable	-	-
	Net cash provided by operating activities		$ -

Cash flows from investing activities:
	Purchase of equipment	$ -
	Net cash used by investing activities		-

Cash flows from financing activities:
	Proceeds from issuing stock	$ -
	Dividends on common	-
	Net cash provided by financing activities		-
Net decrease in cash			$ -
Cash balance at January 1, 20X5			-
Cash balance at December 31, 20X5			$ -

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-16.14

B-16.14

Problem 4

1. Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate?

a. Liquidity

b. Turnover

c. Profitability

d. Other indicator

2. Zhang Corporation had net income of $100,000, paid income taxes of $30,000, and had interest expense of $8,000. What was Zhang's times interest earned ratio?

a. 12.5

b. 16.25

c. 17.25

d. 17.85

3. Selected information for 20X1 for the Bernstein Company is as follows:

Cost of goods sold $6,000,000

Average inventory $2,000,000

Net sales $8,000,000

Average receivables $3,000,000

Net income $1,000,000

Assuming a 360-day business year, what was the inventory turnover ratio for Bernstein?

a. 3

b. 4

c. 5

d. 6

4. Thompson Corporation wrote off a $200 uncollectible account receivable against the $2,400 balance in its Allowance for Bad Debts account. Compare the current ratio before the write-off (X) with the current ratio after the write-off (Y).

a. X greater than Y

b. X equals Y

c. X less than Y

d. Cannot be determined

5. Ames Corporation's net accounts receivable were $750,000 on December 31, 20X1, and $1,250,000 on December 31, 20X2. Net cash sales for 20X2 were $3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2?

a. $12,800,000

b. $16,000,000

c. $16,100,000

d. $19,300,000