P4-10. Understanding the relation between operating cash flows
and accrual earnings
Requirement 1:
Sales1 ($28,000 + $3,000) $31,000
Less:
1Collections from customers + decrease in accounts receivable.
2Payment to suppliers for purchases + increase in accounts payable –
increase in inventory.
Requirement 2:
Net income $4,000
Plus/minus adjustments:
P4-11. Conversion of statement of cash flows to accrual basis
income statement.
Bradley Corporation
Income Statement
For the year Ending December 31, 2017
Revenues and gains:
Sales ($375,000 + $40,000) $415,000
Dividend Revenue ($10,000 − $2,000) 8,000
Gain on sale of investments 10,000
Total 433,000
Expenses and losses:
Note 1: Purchase of machinery $150,000
Less: Write-off of obsolete machinery (8,000)
x = $42,000
P4-12. Preparing the balance sheet and income statement
(AICPA adapted)
Requirement 1:
Vanguard Corporation
Balance Sheet
December 31, 2017
Assets
Current assets:
Inventories (obtained from cost of sales section of
the income statement) 2,750,000
Total current assets 9,565,540
Liabilities and Stockholders’ Equity
Current Liabilities:
Stockholders’ equity:
Capital stock7$1,050,000
Additional paid-in capital81,800,000
1Cash :
Cash balance at December 31, 2016 $4,386,040
Add:
Less:
Purchases and freight-in 10,905,000
Other administrative, selling and general expenses 2 ,403,250
13,308,250
3Accumulated depreciation:
4Notes payable due within one year:
Face value of note $ 5,000,000
5Federal income taxes payable:
Provision for taxes on 2017 earnings per income statement $ 530,000
6Notes payable due after one year:
Balance 12/31/16 $ 4,000,000
7Capital stock:
Balance 12/31/16 $1,000,000
8Additional paid-in capital:
Balance 12/31/16 $1,500,000
Requirement 2:
Vanguard Corporation
Income Statement
Year ended December 31, 2017
Net sales (given) $15,650,000
Cost of sales
Less: Ending inventory (plug necessary for 30%
Operating and other expenses
Interest1231,250
Income tax expense (given)
( 530,000)
Net income $ 1 ,000,000
15% per year on notes adjusted for four 2017 quarterly payments of $250,000.
($62,500 + $59,375 + $56,250 + $53,125)
Vanguard Corporation
Statement of Retained Earnings
Year Ended December 31, 2017
Beginning retained earnings (given) $2,350,040
Less cash dividends paid:
Fair value of 50,000 shares
of common stock issued as stock dividend
(50,000 shares @ $7) 350,000
P4-13: Positioning of items within cash flow statement—IFRS vs. US
GAAP—Lend Corp.
Requirement 1:
Requirement 2:
Requirement 3:
Requirement 4:
Requirement 5:
In Requirement 3, the Net Cash Flows from Operating Activities is -$1,000.
In Requirement 4, it is -$30,000. Because the fundamental operational
P 4-14: Positioning of items within cash flow statement—IFRS vs. U.S.
GAAP—Sell Corp.
Requirement 1:
Requirement 2:
Requirement 3:
Requirement 4:
Requirement 5:
In Requirement 3, the Net Cash Flows from Operating Activities is
$309,000. In Requirement 4, it is $320,000. Because the fundamental
operational goal of this company is to sell merchandise, the IFRS option to
remove interest-related cash flows from Net Cash Flows from Operating