(40 min.) P 12-68B
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 ………………………………….
Accounts payable
Accounts receivable
($188,000 − $75,300) …
$112,700
($490,000 × .50) ………………
Salary payable …………….
8,000
Inventory (3 × $47,000) ……….
Total current liabilities …
120,700
Total current assets ………..
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)
Total equity …………………
488,500
Total liabilities and
Total assets …………………………..
stockholders’ equity ……
$609,200
____
*$450,000 (stock) − $175,000 (equipment) − $234,000 (inventory) − $16,000 (rent) −
$75,300 (inventory) + $245,000 (sales) − $70,000 (salaries) − $19,500 (taxes) –
$22,000 (dividends) = $83,200
(continued) P 12-68B
Req. 3
Lexington Luxury Autos, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers
($490,000 x .50) ………………………………………
$ 245,000
Total cash receipts …………………………………
245,000
Payments:
To suppliers ($234,000 + $75,300 + $16,000) …..
$(325,300)
To employees ($78,000 – $8,000) ………………..
(70,000)
For income tax ………………………………………….
(19,500)
Total cash payments ………………………………
(414,800)
Net cash used for 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
(35-45 min.) P 12-69B
Watson Software Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………………………………
$ 67,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ………………………….
$ 19,000
Amortization expense ………………………….
4,600
Gain on sale of equipment …………………..
(8,000)
Decrease in accounts receivable ………….
11,800
Decrease in inventories ……………………….
29,000
Increase in prepaid expenses ………………
(800)
Increase in accounts payable ………………
6,700
Increase in income tax payable ……………
2,100
Decrease in accrued liabilities ……………..
(1,500)
62,900
Net cash provided by operating activities …
129,900
Cash flows from investing activities:
Purchase of building …………………………………..
$(116,000)
Purchase of long-term investment……………….
(35,200)
Proceeds from sale of equipment ………………..
12,900
Collection of loan ……………………………………….
25,600
Net cash used for investing activities ……….
(112,700)
Cash flows from financing activities:
Issuance of common stock …………………………
$ 55,000
Issuance of long-term note payable …………….
50,600
Payment of cash dividends …………………………
(19,000)
Purchase of treasury stock …………………………
(10,900)
Net cash provided by financing activities …
75,700
Net increase in cash ………………………………………..
$ 92,900
Cash balance, December 31, 2013 …………………….
7,800
Cash balance, December 31, 2014 …………………….
$100,700
(continued) P 12-69B
Noncash investing and financing activities:
Acquisition of land by issuing long-term note payable
$163,000
Retirement of bonds payable by issuing common stock
80,000
Total noncash investing and financing activities
$243,000
(35-45 min.) P 12-70B
Req. 1
Majestic Movie Theater Company
Statement of Cash Flows
Year Ended September 30, 2014
Cash flows from operating activities:
Net income …………………………………………………..
$ 65,400
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense …………………………...
$ 15,300
Amortization expense …………………………...
8,000
Decrease in accounts receivable ……………
9,500
Increase in inventories ………………………….
(2,600)
Increase in prepaid expenses ………………..
(5,700)
Increase in accounts payable …………………
21,900
Increase in accrued liabilities …………………
7,000
Increase in income tax payable ………………
5,000
58,400
Net cash provided by operating activities …..
123,800
Cash flows from investing activities:
Purchase of building… …………………………………
$(44,000)
Purchase of equipment …………………………………
(82,200)
Sale of long-term investment ………………………..
8,300
Net cash used for investing activities… ……..
(117,900)
Cash flows from financing activities:
Issuance of common stock …………………………..
$ 12,000
Issuance of long-term note payable ………………
40,000
Payment of cash dividends …………………………..
(25,000)
Net cash provided by financing activities …..
27,000
Net increase (decrease) in cash …………………………
$ 32,900
Cash balance, September 30, 2013 …………………….
26,700
Cash balance, September 30, 2014 …………………….
$ 59,600
Noncash investing and financing activities:
Acquisition of land by issuing note payable …..
$125,000
(continued) P 12-70B
Req. 2
Majestic’s cash flows look strong. Operations are a significant source of
cash indicating that the company generated sufficient net income to
cover operating activities for the year. Majestic had a negative cash flow
(30-40 min.) P 12-71B
Req. 1
Sommar Medical Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income ……………………………………………………
$ 91,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ………………………………………….
$ 15,000
Increase in accounts receivable ………………
(4,000)
Increase in inventories…………………………...
(12,000)
Decrease in prepaid expenses ………………..
1,500
Increase in accounts payable ………………….
9,400
Decrease in salary payable ……………………..
(4,500)
Decrease in other accrued liabilities………..
(1,300)
4,100
Net cash provided by operating activities …..
95,800
Cash flows from investing activities:
Purchase of land …………………………………………..
$(15,800)
Purchase of equipment ($49,100 −
depreciation expense of $15,000 = $34,100;
$66,100 − $34,100) …………………………………….
(32,000)
Net cash used for investing activities …………
(47,800)
Cash flows from financing activities:
Payment of dividends
($27,000 + $91,700 − $64,000) …………………….
$(54,700)
Issuance of note payable ………………………………
28,000
Issuance of common stock …………………………...
14,200
Net cash used for financing activities …………
(12,500)
Net increase in cash ………………………………………….
$ 35,500
Cash balance, December 31, 2013 ………………………
15,200
Cash balance, December 31, 2014 ………………………
$ 50,700
(continued) P 12-71B
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
(30-40 min.) P 12-72B
Sommar Medical Supply Corp.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers
($571,000 – $4,000) …………………………………
$567,000
Total cash receipts …………………………………
567,000
Payments:
To suppliers ($248,300 + $12,000 – $9,400 +
$57,200 – $1,500 + $1,300) ………………………
$(307,900)
To employees ($94,900 + $4,500) ………………..
(99,400)
For interest ……………………………………………….
(24,800)
For income tax ………………………………………….
(39,100)
Total cash payments ………………………………
(471,200)
Net cash provided by operating activities …..
95,800
Cash flows from investing activities:
Purchase of land …………………………………………..
$(15,800)
Purchase of equipment ($49,100 −
depreciation expense of $15,000 = $34,100;
$66,100 − $34,100) …………………………………….
(32,000)
Net cash used for investing activities …………
(47,800)
Cash flows from financing activities:
Payment of dividends
($27,000 + $91,700 − $64,000) …………………….
$(54,700)
Issuance of note payable ………………………………
28,000
Issuance of common stock …………………………...
14,200
Net cash used for financing activities …………
(12,500)
Net increase in cash ………………………………………….
$ 35,500
Cash balance, December 31, 2013 ………………………
15,200
Cash balance, December 31, 2014 ………………………
$ 50,700
(continued) P 12-72B
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 12-73B
Req. 1
The Ritz Furniture Gallery, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers
($348,000 + $170,600) ……………………………..
$ 518,600
Interest received ……………………………………….
4,800
Dividends received ……………………………………
4,000
Total cash receipts …………………………………
$ 527,400
Payments:
To suppliers ……………………………………………..
$(325,400)
To employees ……………………………………………
(87,000)
For income tax ………………………………………….
(36,000)
For interest ……………………………………………….
(13,800)
Total cash payments ………………………………
(462,200)
Net cash provided by operating activities …..
65,200
Cash flows from investing activities:
Purchase of plant assets ………………………………
$ (87,400)
Collection of loans ……………………………………….
18,500
Proceeds from sale of plant assets ……………….
23,000
Loan to another company ……………………………..
(7,900)
Proceeds from sale of investments ……………….
9,500
Net cash used for investing activities …………
(44,300)
Cash flows from financing activities:
Proceeds from issuance of common stock …….
$ 10,800
Payments of long-term note payable ……………..
(48,000)
Payment of dividends …………………………………..
(45,200)
Proceeds from issuance of note payable ……….
24,800
Net cash used for financing activities …………
(57,600)
Net decrease in cash ………………………………………..
$ (36,700)
Cash balance, December 31, 2013 ……………………..
98,000
Cash balance, December 31, 2014 ……………………..
$ 61,300
(continued) P 12-73B
Noncash investing and financing activities:
Payment of short-term note payable by issuing
long-term note payable ……………………………………………
$ 74,000
Acquisition of equipment by issuing
short-term note payable…………………………………………..
56,300
Total noncash investing and financing activities ………………
$130,300
Req. 2
Year 2014 was a good year from a cash-flow standpoint. Operations
provided cash and the company was able to pay off a long-term note
(45-60 min.) P 12-74B
Req. 1
Four Star Electric Company
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Receipts:
Collections from customers ………………………
$664,500
Dividends received ……………………………………
16,900
Total cash receipts ………………………………..
$ 681,400
Payments:
To suppliers ($401,000 + $34,300) ………………
$(435,300)
To employees ……………………………………………
(143,900)
For interest ……………………………………………….
(27,000)
For income tax ………………………………………….
(28,600)
Total cash payments ……………………………..
(634,800)
Net cash provided by operating activities …..
46,600
Cash flows from investing activities:
Purchase of equipment ………………………………….
$ (31,900)
Sale of long-term investments ……………………….
32,400
Net cash provided by investing activities ……
500
Cash flows from financing activities:
Payment of long-term note payable ………………..
$ (35,000)
Issuance of common stock …………………………...
47,900
Purchase of treasury stock …………………………...
(26,300)
Payment of dividends ……………………………………
(27,800)
Net cash used for financing activities …………
(41,200)
Net increase (decrease) in cash …………………………
$ 5,900
Cash balance, December 31, 2013 ………………………
45,400
Cash balance, December 31, 2014 ………………………
$ 51,300
Noncash investing and financing activities:
Acquisition of land by issuing common stock ………………..
$ 56,000
Retirement of long-term note payable by
issuing common stock ……………………………………………..
25,000
Total noncash investing and financing activities ………………..
$ 81,000
(continued) P 12-74B
Req. 2
Four Star Electric Company
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income …………………………………………………..
$50,300
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Depreciation expense …………………………….
$20,600
Loss on sale of investments …………………..
6,500
Decrease in accounts receivable …………….
27,500
Increase in inventories …………………………..
(61,600)
Increase in prepaid expenses …………………
(400)
Increase in accounts payable …………………
8,200
Increase in interest payable ……………………
1,700
Increase in salary payable ………………………
7,600
Decrease in other accrued liabilities ……….
(10,400)
Decrease in income tax payable ……………..
(3,400)
(3,700)
Net cash provided by operating activities ………
$46,600
(45-60 min.) P 12-75B
Req. 1
Amanda Aguilar Design Studio, Inc.
Statement of Cash Flows
Year Ended June 30, 2014
Cash flows from operating activities:
Net income ……………………………………………………
$ 63,800
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense ……………………………..
$ 13,900
Loss on sale of land ………………………………..
6,400
Increase in accounts receivable ……………….
(16,300)
Increase in inventories …………………………….
(18,500)
Decrease in prepaid expenses …………………
800
Decrease in accounts payable …………………
(1,400)
Increase in accrued liabilities …………………..
11,100
Decrease in taxes payable ……………………….
(1,500)
Increase in interest payable ……………………..
500
Decrease in salary payable ………………………
(400)
(5,400)
Net cash provided by operating activities ……
58,400
Cash flows from investing activities:
Sale of land …………………………………………………..
$ 50,400
Purchase of long-term investments ………………..
(4,800)
Net cash provided by investing activities …….
45,600
Cash flows from financing activities:
Payment of cash dividends …………………………...
$(38,100)
Issuance of common stock …………………………...
8,200
Payment of long-term note payable ………………..
(60,700)
Net cash used for financing activities ………….
(90,600)
Net increase in cash ………………………………………….
$ 13,400
Cash balance, June 30, 2013 ……………………………..
18,500
Cash balance, June 30, 2014 ……………………………..
$ 31,900
(continued) P 12-75B
Req. 1
Noncash investing and financing activities:
Acquisition of equipment by issuing
long-term note payable ……………………………..
$15,000
Paid off short-term note payable by issuing
common stock ………………………………………….
5,400
Total noncash investing and financing activities ..
$20,400
Req. 2
Amanda Aguilar Design Studio, Inc.
Statement of Cash Flows
Year Ended June 30, 2014
Cash flows from operating activities:
Receipts:
Collections from customers ……………………..
$ 235,900
Interest received ………………………………………
1,600
Total cash receipts ………………………………
$ 237,500
Payments:
To suppliers …………………………………………….
$(130,300)
To employees ………………………………………….
(29,500)
For income tax …………………………………………
(13,500)
For interest ……………………………………………..
(5,800)
Total cash payments …………………………...
(179,100)
Net cash provided by operating activities ……..
$ 58,400