Problems
(40 min.) P 12-58A
Req. 1
Fairfax Fine Automobiles, Inc.
Income Statement
Year Ended December 31, 2014
Sales revenue ……………………………………………………………..
$497,000
Cost of goods sold [$136,000 + (3 × $45,000)] ……………….
271,000
Salary expense ……………………………………………………………
102,000
Depreciation expense ($150,000 / 5) ……………………………..
30,000
Rent expense ………………………………………………………………
24,000
Income tax expense …………………………………………………….
17,500
Net income ………………………………………………………………….
$ 52,500
Req. 2
Fairfax Fine Automobiles, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Current:
Current:
Cash …………………………..……..
Accounts payable
Accounts receivable
($405,000 − $164,200) …
$240,800
($497,000 × .10) ………………….
Salary payable …………….
9,000
Inventory (6 × $45,000) ……….
Total current liabilities …
249,800
Total current assets …………..
STOCKHOLDERS’ EQUITY
Property, plant, and equipment:
Common stock ……………….
300,000
Equipment ………….
$150,000
Retained earnings
Less:Accumulated
($52,500 − $20,000) ………..
32,500
depreciation …….
(30,000)
Total equity …………………
332,500
Total liabilities and
Total assets …………………………..
stockholders’ equity ………
$582,300
____
*$300,000 (stock) − $150,000 (equipment) − $136,000 (inventory) − $24,000 (rent) –
$164,200 (inventory) + $447,300 (sales) – $93,000 (salaries) – $17,500 (taxes) –
$20,000 (dividends) = $142,600
(continued) P 12-58A
Req. 3
Fairfax Fine Automobiles, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………………………………
$ 52,500
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation expense ………………………….
$ 30,000
Increase in accounts receivable …………..
(49,700)
Increase in inventory …………………………..
(270,000)
Increase in accounts payable ………………
240,800
Increase in salary payable …………………..
9,000
(39,900)
Net cash provided by operating activities
12,600
Cash flows from investing activities:
Purchase of equipment ……………………………….
$(150,000)
Net cash used for investing activities……….
(150,000)
Cash flows from financing activities:
Issuance of common stock ………………………….
$300,000
Payment of dividend ……………………………………
(20,000)
Net cash provided by financing activities …
280,000
Net increase in cash ………………………………………..
$ 142,600
Cash balance, January 1, 2014 …………………………
0
Cash balance, December 31, 2014 ……………………
$ 142,600
(40 min.) P 12-59A
Req. 1
Fairfax Fine Automobiles, Inc.
Income Statement
Year Ended December 31, 2014
Sales revenue ……………………………………………………………..
$497,000
Cost of goods sold [$136,000 + (3 × $45,000)] ……………….
271,000
Salary expense ……………………………………………………………
102,000
Depreciation expense ($150,000 / 5) ……………………………..
30,000
Rent expense ………………………………………………………………
24,000
Income tax expense …………………………………………………….
17,500
Net income ………………………………………………………………….
$ 52,500
Req. 2
Fairfax Fine Automobiles, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Current:
Current:
Cash …………………………..……..
Accounts payable
Accounts receivable
($405,000 − $164,200) …
$240,800
($497,000 × .10) ………………….
Salary payable …………….
9,000
Inventory (6 × $45,000) ……….
Total current liabilities …
249,800
Total current assets …………..
STOCKHOLDERS’ EQUITY
Property, plant, and equipment:
Common stock ……………….
300,000
Equipment ………….
$150,000
Retained earnings
Less:Accumulated
($52,500 − $20,000) ………..
32,500
depreciation …….
(30,000)
Total equity …………………
332,500
Total liabilities and
Total assets …………………………..
stockholders’ equity ………
$582,300
____
*$300,000 (stock) − $150,000 (equipment) − $136,000 (inventory) − $24,000 (rent) –
$164,200 (inventory) + $447,300 (sales) – $93,000 (salaries) – $17,500 (taxes) –
$20,000 (dividends) = $142,600
(continued) P 12-59A
Req. 3
Fairfax Fine Automobiles, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers
($497,000 x 90%) ……………………………………
$ 447,300
Total cash receipts ………………………………………..
447,300
Payments:
To suppliers ($136,000 + $164,200 +$24,000) ….
$(324,200)
To employees ($102,000 – $9,000) ………………
(93,000)
For income tax …………………………………………..
(17,500)
Total cash payments ……………………………..
(434,700)
Net cash provided by operating activities ……
12,600
Cash flows from investing activities:
Purchase of equipment ………………………………….
$(150,000)
Net cash used for investing activities………….
(150,000)
Cash flows from financing activities:
Issuance of common stock …………………………….
$300,000
Payment of dividend ………………………………………
(20,000)
Net cash provided by financing activities ……
280,000
Net increase in cash …………………………………………..
$ 142,600
Cash balance, January 1, 2014 …………………………...
0
Cash balance, December 31, 2014 ………………………
$ 142,600
(35-45 min.) P 12-60A
DeWitt Software Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………………………………….
$ 64,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………….
$ 13,000
Amortization expense ………………………………
4,200
Loss on sale of equipment………………………..
4,000
Decrease in accounts receivable ………………
13,300
Decrease in inventories …………………………...
32,400
Increase in prepaid expenses ……………………
(1,100)
Decrease in accounts payable …………………..
(28,600)
Increase in income tax payable …………………
2,300
Increase in accrued liabilities ……………………
7,500
47,000
Net cash provided by operating activities ……..
111,000
Cash flows from investing activities:
Purchase of building ………………………………………
$(95,000)
Purchase of long-term investment …………………..
(37,400)
Proceeds from sale of equipment ……………………
12,700
Collection of loan …………………………………………..
25,000
Net cash used for investing activities …………..
(94,700)
Cash flows from financing activities:
Issuance of common stock ……………………………..
$ 35,000
Issuance of long-term note payable …………………
34,800
Payment of cash dividends …………………………….
(18,100)
Purchase of treasury stock ……………………………..
(10,200)
Net cash provided by financing activities ……..
41,500
Net increase in cash ………………………………………….
$ 57,800
Cash balance, December 31, 2013 ………………………
38,600
Cash balance, December 31, 2014 ………………………
$ 96,400
(continued) P 12-60A
Noncash investing and financing activities:
Acquisition of land by issuing long-term note payable …..
$163,000
Retirement of bonds payable by issuing common stock ..
75,000
Total noncash investing and financing activities ……………….
$238,000
`
(35-45 min.) P 12-61A
Req. 1
Orpheum Movie Theater Company
Statement of Cash Flows
Year Ended June 30, 2014
Cash flows from operating activities:
Net income …………………………………………………..
$ 65,200
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………………
$14,700
Amortization expense ……………………………..
3,000
Decrease in accounts receivable ……………..
5,400
Increase in inventories …………………………….
(2,900)
Increase in prepaid expenses …………………..
(2,100)
Increase in accounts payable …………………..
5,000
Increase in accrued liabilities …………………..
9,300
Decrease in income tax payable ……………….
(1,000)
31,400
Net cash provided by operating activities …
96,600
Cash flows from investing activities:
Purchase of equipment …………………………………
$(58,700)
Purchase of building …………………………………….
(50,000)
Sale of long-term investment ………………………..
13,600
Net cash used for investing activities ………….
(95,100)
Cash flows from financing activities:
Issuance of long-term note payable ………………
$ 40,000
Issuance of common stock …………………………..
5,000
Payment of cash dividend …………………………….
(30,000)
Net cash provided by financing activities …….
15,000
Net increase in cash ………………………………………..
$ 16,500
Cash balance, June 30, 2013 …………………………….
21,700
Cash balance, June 30, 2014 …………………………….
$ 38,200
Noncash investing and financing activities:
Acquisition of land by issuing note payable …..
$113,000
(continued) P 12-61A
Req. 2
(30-40 min.) P 12-62A
Req. 1
Sudan Medical Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income ………………………………………………………
$98,100
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………………….
$ 16,100
Increase in accounts receivable …………………..
(16,700)
Increase in inventories ………………………………..
(2,200)
Decrease in prepaid expenses …………………….
2,600
Increase in accounts payable ………………………
8,600
Increase in salary payable………………………..
4,900
Decrease in other accrued liabilities …………….
(7,600)
5,700
Net cash provided by operating activities ………
103,800
Cash flows from investing activities:
Purchase of land ……………………………………………..
$(27,400)
Purchase of equipment ($49,600 − depreciation
expense of $16,100 = $33,500; $62,900 −
$33,500) ……………………………………………………..
(29,400)
Net cash used for investing activities …………….
(56,800)
Cash flows from financing activities:
Payment of dividends ($26,800 + $98,100 − $70,200)
$(54,700)
Issuance of note payable …………………………..……..
19,000
Issuance of common stock …………………………..….
23,000
Net cash used for financing activities …………….
(12,700)
Net increase in cash …………………………………………….
$ 34,300
Cash balance, December 31, 2013 …………………………
21,900
Cash balance, December 31, 2014 …………………………
$ 56,200
(continued) P 12-62A
Req. 2
This problem will help students learn how operating activities, investing
activities, and financing activities generate cash receipts and cash
(30-40 min.) P 12-63A
Req. 1
Sudan Medical Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers
($581,000 – $16,700) …………………………………
$564,300
Total cash receipts …………………………………..
564,300
Payments:
To suppliers ($249,500 + $2,200 – $8,600 +
$59,000 – $2,600 + $7,600) ………………………..
$307,100
To employees ($95,700 – $4,900) ………………….
90,800
For interest …………………………………………………
24,100
For income tax ……………………………………………
38,500
Total cash payments …………………………..……
(460,500)
Net cash provided by operating activities …….
103,800
Cash flows from investing activities:
Purchase of land ……………………………………………
$(27,400)
Purchase of equipment ($49,600 − depreciation
expense of $16,100 = $33,500; $62,900 −
$33,500) ……………………………………………………..
(29,400)
Net cash used for investing activities …………..
(56,800)
Cash flows from financing activities:
Payment of dividends ($26,800 + $98,100 – $70,200)
$(54,700)
Issuance of note payable …………………………..……
19,000
Issuance of common stock …………………………....
23,000
Net cash used for financing activities …………..
(12,700)
Net increase in cash …………………………………………..
$ 34,300
Cash balance, December 31, 2013 ……………………….
21,900
Cash balance, December 31, 2014 ……………………….
$ 56,200
(continued) P 12-63A
Req. 2
This problem will help students learn how operating activities, investing
activities, and financing activities generate cash receipts and cash
payments. By solving this problem, students will learn how companies
(35-45 min.) P 12-64A
Req. 1
Lane’s Furniture Gallery, Inc.
Statement of Cash Flows
Year Ended March 31, 2015
Cash flows from operating activities:
Receipts:
Collections from customers
($416,000 + $170,200) …………………………..
$586,200
Interest received …………………………………….
4,900
Dividends received …………………………………
4,500
Total cash receipts ………………………………
$595,600
Payments:
To suppliers …………………………………………..
$(386,400)
To employees …………………………..…………….
(97,000)
For interest …………………………………………….
(13,400)
For income tax ……………………………………….
(38,000)
Total cash payments …………………………...
(534,800)
Net cash provided by operating activities …
60,800
Cash flows from investing activities:
Purchase of plant assets …………………………...
$ (92,100)
Sale of plant assets ……………………………………
21,800
Collection of loans …………………………………….
12,500
Loan to another company …………………………..
(11,300)
Sale of investments ……………………………………
17,900
Net cash used for investing activities ………
(51,200)
Cash flows from financing activities:
Payments of long-term notes payable …………
$ (60,400)
Payment of dividends ………………………………..
(45,500)
Issuance of note payable …………………………...
25,000
Issuance of common stock …………………………
8,500
Net cash used for financing activities ………
(72,400)
Net (decrease) in cash …………………………………..
$ (62,800)
Cash balance, March 31, 2014 ……………………….
101,000
Cash balance, March 31, 2015 ……………………….
$ 38,200
(continued) P 12-64A
Noncash investing and financing transactions:
Payment of short-term note payable by
issuing long-term note payable ……………………………..
$56,000
Acquisition of equipment by issuing
short-term note payable………………………………………..
24,200
Total noncash investing and financing transactions ………
$80,200
Req. 2
Year 2015 was a strong year from a cash-flow standpoint. Operations
provided the bulk of the company’s cash and the company was able to
issue new stock and debt. This means stockholders and creditors have
faith in the company. The business acquired additional plant assets,
reduced their debt, and paid dividends which generally bodes well for
the future.
(45-60 min.) P 12-65A
Req. 1
Tri-State Electric Company
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers …………………………...
$664,200
Dividends received …………………………………………
17,500
Total cash receipts ……………………………………..
$681,700
Payments:
To suppliers ($403,700 + $34,000)……………………
$(437,700)
To employees …………………………..…………………….
(134,900)
For interest …………………………………………………….
(29,200)
For income tax ……………………………………………….
(28,400)
Total cash payments …………………………………..
(630,200)
Net cash provided by operating activities ……….
51,500
Cash flows from investing activities:
Purchase of equipment ……………………………………..
$ (31,900)
Sale of long-term investments …………………………...
21,500
Net cash used for investing activities ……………..
(10,400)
Cash flows from financing activities:
Issuance of common stock ………………………………..
$ 61,600
Payment of long-term note payable ……………………
(35,400)
Payment of dividends ………………………………………..
(27,400)
Purchase of treasury stock ………………………………..
(19,000)
Net cash used for financing activities ……………..
(20,200)
Net increase in cash ……………………………………………..
$ 20,900
Cash balance, December 31, 2013 …………………………
10,200
Cash balance, December 31, 2014 …………………………
$ 31,100
Noncash investing and financing activities:
Acquisition of land by issuing common stock
$ 84,300
Retirement of note payable by issuing common stock
23,000
Total noncash investing and financing activities
$107,300
(continued) P 12-65A
Req. 2
Tri-State Electric Company
Cash Flows from Operating Activities
Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………………………………
$ 72,500
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………………
$ 21,300
Loss on sale of investments …………………….
17,400
Increase in accounts receivable ……………….
(27,900)
Increase in inventories …………………………….
(54,200)
Increase in prepaid expenses …………………..
(600)
Increase in accounts payable ……………………
8,200
Decrease in interest payable …………………….
(900)
Increase in salary payable ………………………..
7,600
Increase in other accrued liabilities …………..
10,500
Decrease in income tax payable …………………..
(2,400)
(21,000)
Net cash provided by operating activities ………..
$ 51,500
(45-60 min.) P 12-66A
Req. 1
Victoria Vicente Design Studio, Inc.
Statement of Cash Flows
Year Ended June 30, 2014
Cash flows from operating activities:
Net income …………………………………………………….
$ 72,800
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………….
$ 13,300
Loss on sale of land …………………………………
6,700
Increase in accounts receivable ………………..
(36,900)
Increase in inventories ……………………………..
(38,000)
Decrease in prepaid expenses ………………….
800
Increase in accounts payable ……………………
6,000
Decrease in income tax payable ………………..
(1,700)
Increase in accrued liabilities ……………………
63,400
Increase in interest payable ………………………
1,200
Decrease in salary payable ……………………….
(2,100)
12,700
Net cash provided by operating activities ….
85,500
Cash flows from investing activities:
Sale of land ……………………………………………………
$ 36,400
Purchase of long-term investment …………………..
(17,700)
Net cash provided by investing activities ……..
18,700
Cash flows from financing activities:
Payment of long-term note payable …………………
$(61,100)
Payment of cash dividends …………………………….
(37,700)
Issuance of common stock ……………………………..
13,200
Net cash used for financing activities …………..
(85,600)
Net increase in cash ………………………………………….
$ 18,600
Cash balance, June 30, 2013 ……………………………..
12,200
Cash balance, June 30, 2014 ……………………………..
$ 30,800
(continued) P 12-66A
Req. 1
Noncash investing and financing activities:
Acquisition of equipment by issuing
long-term note payable ………………………………………….
$14,200
Payment of short-term note payable by
issuing common stock ………………………………………….
4,900
Total noncash investing and financing activities …………….
$19,100
Req. 2
Victoria Vicente Design Studio, Inc.
Statement of Cash Flows
Year Ended June 30, 2014
Cash flows from operating activities:
Receipts:
Collections from customers …………………….
$230,800
Interest received ……………………………………..
1,400
Total cash receipts ……………………………..
$ 232,200
Payments:
To suppliers …………………………..……………….
$ (98,400)
To employees …………………………………………
(30,700)
For income tax ………………………………………..
(13,200)
For interest …………………………………………….
( 4,400)
Total cash payments …………………………..
(146,700)
Net cash provided by operating activities …….
$ 85,500
(40 min.) P 12-67B
Req. 1
Lexington Luxury Autos, Inc.
Income Statement
Year Ended December 31, 2014
Sales revenue ……………………………………………………..
$490,000
Cost of goods sold [$234,000 + (1 × $47,000)] ……….
281,000
Salary expense ……………………………………………………
78,000
Rent expense ………………………………………………………
16,000
Depreciation expense ($175,000 / 5) ……………………..
35,000
Income tax expense …………………………………………….
19,500
Net income ………………………………………………………….
$ 60,500
Req. 2
Lexington Luxury Autos, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Current:
Current:
Cash …………………………..……..
$ 83,200*
Accounts payable
Accounts receivable
($188,000 − $75,300) …
$112,700
($490,000 × .50) ………………
245,000
Salary payable …………….
8,000
Inventory (3 × $47,000) ……….
141,000
Total current liabilities …
120,700
Total current assets ………..
469,200
STOCKHOLDERS’ EQUITY
Property, plant, and equipment:
Common stock ……………….
450,000
Equipment ………….
$175,000
Retained earnings
Less:Accumulated
($60,500 − $22,000) ………
38,500
depreciation …….
(35,000)
140,000
Total equity …………………
488,500
Total liabilities and
Total assets …………………………..
$609,200
stockholders’ equity ……
$609,200
(continued) P 12-67B
Req. 3
Lexington Luxury Autos, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income ………………………………………………………
$ 60,500
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation expense ……………………………….
$ 35,000
Increase in accounts receivable ………………..
(245,000)
Increase in inventory ………………………………..
(141,000)
Increase in accounts payable ……………………
112,700
Increase in salary payable ………………………..
8,000
(230,300)
Net cash used by operating activities…………….
(169,800)
Cash flows from investing activities:
Purchase of equipment …………………………………….
$(175,000)
Net cash used for investing activities…………….
(175,000)
Cash flows from financing activities:
Issuance of common stock ……………………………….
$ 450,000
Payment of dividend …………………………………………
(22,000)
Net cash provided by financing activities ………
428,000
Net increase in cash ……………………………………………..
$ 83,200
Cash balance, January 1, 2014 ………………………………
0
Cash balance, December 31, 2014 …………………………
$ 83,200