Chapter 2
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223. Read the information about Burke Company
Required
Prepare a single-step income statement for the year ended December 31, 2017.
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224. The 2016 income statement of Kellyson Enterprises shows operating revenues of $120,500, selling expenses of
$35,200, general and administrative expenses of $29,900, interest expense of $1,500, and income tax expense of $10,520.
Kellyson’s stockholders’ equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The
company has 20,000 shares of stock outstanding at December 31, 2017.
Required
Compute Kellyson’s profit margin. What other information would you need in order to comment on whether this ratio is
favorable?
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225. The 2017 income statement of Nasir Inc. shows operating revenues of $135,800, selling expenses of $40,310, general
and administrative expenses of $33,990, interest expense of $880, and income tax expense of $13,090. Nasir’s
stockholders’ equity was $250,000 at the beginning of the year and $345,000 at the end of the year. The company has
10,000 shares of stock outstanding at December 31, 2017.
Required
Compute Nasir’s profit margin. What other information would you need in order to comment on whether this ratio is
favorable?
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226. Hammar Corporation’s partial income statement is as follows:
Sales $2,400,000
Cost of sales 900,000
Selling expenses 121,600
General and administrative expenses 150,000
Required
Determine the profit margin. Would you invest in Hammar Corporation? Explain your answer.
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227. Vance Corporation’s partial income statement is as follows:
Sales $1,300,000
Cost of sales 300,000
Selling expenses 210,000
General and administrative expenses 150,000
Required
Determine the profit margin. Would you invest in Vance Corporation? Explain your answer.
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228. Powder Corporation began operations on January 2, 2016, with a total investment of $150,000 by its stockholders.
Net income for its first year of business was $90,000. During 2017 and 2018, net income increased to $188,000 and
$217,000, respectively. Powder paid $85,000 in dividends to its shareholders in each of the three years.
A) In good form, prepare a statement of retained earnings for the year ended December 31, 2017.
B) How much is total retained earnings on December 31, 2018?
C) Explain the link between the statement of retained earnings and the balance sheet.
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229. The following information is taken from Harvey Company’s balance sheet at December 31, 2016:
Cash $14,000
Retained earnings 14,000
Inventory 8,000
Equipment 38,000
Accounts payable 7,000
Bonds payable 23,000
Capital stock 26,000
Required
Using the information provided for Harvey Company, answer the following questions:
A) How much cash did creditors provide to Harvey Company?
B) On which financial statement would an investor look to see if any stock was issued during the year?
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230. Coglin, Inc. incurred a net loss of $20,000 for 2017. The balance sheet at December 31, 2017, for Coglin, Inc.
includes the following items:
Cash $ 23,000
Accounts receivable 13,000
Inventory 45,000
Prepaid insurance 1,000
Land 14,000
Building 80,000
Accounts payable 55,000
Salaries payable 2,000
Capital stock 100,000
Retained earnings 25,000
A) Determine Coglin’s current ratio and working capital.
B)
Beyond the information provided in your answers to “A,” what does the composition of Coglin’s current assets tell
you about its liquidity?
C) What other information would one need to fully access Coglin’s liquidity?
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231. During 2017, Wimbrow Images reported $60,000 of net income and generated $80,000 of cash from operations.
During the year, Wimbrow Images paid $15,000 to purchase a new delivery truck and also paid dividends in the amount
of $30,000. Wimbrow Images borrowed $40,000 cash from the bank. At the beginning of the year, cash amounted to
$50,000.
A) Prepare a statement of cash flows for the year ended December 31, 2017.
B) How much more cash does Wimbrow Images have available at the end of the year than at the beginning?
C) Why is there a difference between net income and cash flows from operations?
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232. Tradewinds Corporation was organized on January 1, 2017, with the investment of $500,000 in cash by its
stockholders. Tradewinds signed a ten-year, $300,000 promissory note at a local bank during 2017 and received cash in
the same amount. The company immediately purchased an office building for $800,000, paying in cash. During its first
year, Tradewinds generated $35,000 in cash from operations and paid $30,000 in cash dividends.
A) In good form, prepare a statement of cash flows for the year ended December 31, 2017.
B) What does this statement tell you that an income statement does not?