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Financial Reporting and Analysis (7th Ed.)
Chapter 4 Solutions
Structure of the Balance Sheet and Statement of Cash Flows
Exercises
Exercises
E4-1. Analyzing balance sheet classification
b Long-term receivables
(d) Accumulated amortization
f Current maturities of long-term debt
c Machinery
h Donated capital
a Short-term investments
E4-2. Preparing a balance sheet
(1) This classification assumes this amount has been properly accrued. If,
instead, the item is interpreted as an appropriation of retained earnings, it
E4-3. Making financial disclosures
Investments in available-for-sale securities. Eagle must disclose
Accounts receivable (net). Estimated uncollectibles, discounts, returns,
Inventories. The basis of pricing inventories should be disclosed, that is,
lower of cost or net realizable value, or lower of cost or market
when the LIFO or retail inventory method is used. The inventory
Property, plant, and equipment. Major classes of depreciable assets
should be disclosed. Depreciation expense and the methods
Current liabilities and long-term debt. Maturities, interest rates, and other
terms and conditions provided in the loan agreement should be
Stockholders’ equity. For each class of stock, disclosure should be made
regarding the par or stated value and the total number of shares
E4-4. Balance sheet classification
Reagan Company
Balance Sheet
As of December 31, 2017
Assets Liabilities and Stockholders’ Equity
Current assets: Current liabilities:
Cash Accounts payable
Finished goods
Prepaid expenses Long-term liabilities
Total current assets Bonds payable
Land
Buildings Stockholders’ equity:
Less: Accumulated depreciation Preferred stock
Machinery and equipment Common stock
Trademarks
Total assets
E4-5. Determining collections on account
(AICPA adapted)
Cash receipts from sales include collections on account plus cash sales,
computed as follows:
Alternative Solution: T-account analysis of accounts receivable
Accounts Receivable
X = $2,915,000
Total cash receipts from sales:
E4-6. Determining cash from operations
(AICPA adapted)
Cash flows from operations:
Note that cash dividends paid is a financing activity.
E4-7. Determining cash payments to suppliers
E4-8. Determining cash disbursements
(AICPA adapted)
To answer this question, one needs to first determine the accrual basis
expenses and then (1) subtract from this figure expenses not paid in cash; and
(2) add amounts paid out in cash not recorded as accrual expenses.
Total accrual basis expenses:
Subtract: Noncash expenses
E4-9. Determining cash collections on account
(AICPA adapted)
Cash collected from customers can be determined by finding the change in
accounts receivable.
E4-10. Determining cash from operations and reconciling with accrual net
income
Requirement 1:
Cash provided by operating activities:
Requirement 2:
Net income was $100,000, while cash flow from operating activities was
($150,000). $30,000 of difference is explained by depreciation, a noncash
expense. It reduced net income without having any effect on cash flow.
Depreciation caused net income to be $30,000 less than cash flow from
Note: This problem demonstrates that a firm can be profitable under the accrual
E4-11. Determining cash from operations and reconciling with accrual net
income
Requirement 1:
Cash provided by operating activities:
Noncash expenses:
Changes in working capital accounts:
Requirement 2:
Net loss was $200,000, while cash flow from operating activities was $100,000.
$50,000 of difference is explained by depreciation, a noncash expense. It
reduced net income without having any effect on cash flow. Depreciation
caused net income to be $50,000 less than cash flow from operating activities.
Note: This problem demonstrates that a firm can be unprofitable under the
E4-12. Cash provided (used) by operations
E4-13. Construction of cash flow statement
Financial Reporting and Analysis (7th Ed.)
Chapter 4 Solutions
Structure of the Balance Sheet and Statement of Cash Flows
Problems
Problems
P4-1. Preparing a balance sheet
