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Condensed financial data of Drake Company appear below:
Additional information:
1> New plant assets costing $100,000 were purchased for cash in 2015.
2> Old plant assets costing $25,000 were sold for $10,000 cash when book value was
$13,000.
3> Bonds with a face value of $40,000 were converted into $40,000 of common stock.
4> A cash dividend of $15,000 was declared and paid during the year.
5> Accounts payable pertain to merchandise purchases.
Instructions
Prepare a statement of cash flows for the year using the direct method.
Answer:
If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing
of cash by short-term debt and collection of accounts receivable have on the ratio?
Answer:
Sact Creek Company's most recent financial statements showed dismal
performance. There was a net loss of $10,000 and the statement of cash
flows showed a net cash decrease in all categories. The company president
called all the managers together and asked them to do all they could to
make sure the next quarter's performance was better.
Ted Flay, manager of the manufacturing division, sold off old
manufacturing equipment. He also reclassified several workers to part time
(30 hours per week) and hired additional temporary workers to take up the
slack. This saved the company money, since part-time workers do not have
the same insurance and other benefits as full-time workers.
Will Smith, financial manager, immediately suspended payments on all
accounts except those on which interest would accrue. He also instituted
aggressive collection procedures.
1> Were Ted Flay's actions ethical? Explain.
2> Were Will Smith's actions ethical? Explain.
3> Were the company president's actions ethical? Explain.
Answer:
For each of the ratios listed below, indicate by the appropriate code letter, whether it is a
liquidity ratio, a profitability ratio, or a solvency ratio.
Code:
____ 1> Price-earnings ratio
____ 2> Asset turnover
____ 3> Accounts receivable turnover
____ 4> Earnings per share
____ 5> Payout ratio
____ 6> Current ratio
____ 7> Acid-test ratio
____ 8> Debt to assets ratio
____ 9> Times interest earned
____ 10> Inventory turnover
Answer:
The _________________ assumption requires that the activities of an entity be kept
separate from the activities of its owner.
Answer:
Haven Company uses the percentage of sales method for recording bad debt expense.
For the year, cash sales are $600,000 and credit sales are $2,700,000. Management
estimates that 1% is the sales percentage to use. What adjusting entry will Haven
Company make to record the bad debt expense?
Answer:
All recordable transactions are initially recorded in the journal. Discuss the
contributions that the journal makes to the recording process.
Answer:
At June 1, 2015, Coquehcot Industries had an accounts receivable balance of $12,000.
During the month, the company performed credit services of $30,000 and collected
accounts receivable of $22,000. What is the balance in accounts receivable at June 30,
2015?
Answer:
Recording depreciation on plant assets affects the balance sheet and the income
statement.
Answer:
