E5-11B (25–30 minutes)
DE YOUNG CORPORATION
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………………………
$ 15,070
Office supplies …………………………………………….
2,640
Prepaid insurance ………………………………………..
2,200
Total current assets ……………………………….
Equipment …………………………………………………..
Less: Accumulated depreciation ………………..
Intangible—trademark ………………………………….
2,090
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable …………………………………………
$ 22,000
Salaries and wages payable …………………………..
Unearned service revenue …………………………….
4,400
Total current liabilities …………………………...
27,500
Long-term liabilities ……………………………………..
Bonds payable …………………………………………
19,800
Total liabilities ……………………………………….
47,300
Stockholders’ equity
Common stock ……………………………………………..
22,000
Retained earnings ($55,000 – $5,500) ……………..
49,500
Total stockholders’ equity …………………………..
71,500
E5-12B (30–35 minutes)
DO CORPORATION
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ………………………………………………..
$ 98,500
Trading securities ……………………………..
76,500
Accounts receivable ………………………….
Inventories ……………………………………….
298,500
Total current assets …………………….
Long-term investments
Investments in bonds ………………………..
149,500
Investments in stocks ……………………….
138,500
Total long-term investments ……….
288,000
Property, plant, and equipment
Land …………………………………………………
130,000
Building ……………………………………………
520,000
Less: Accum. depreciation ………….
444,000
Equipment ……………………………………….
Less: Accum. depreciation ………….
270,000
844,000
Intangible assets
Franchise (net of $80,000 amortization) …
80,000
Patent (net of $30,000 amortization)……
97,500
Total intangible assets …………………
Total assets ………………………………..
E5-12B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ………………………….
$227,500
Short-term notes payable ……………….
45,000
Dividends payable …………………………
68,000
Accrued liabilities ………………………….
48,000
Total current liabilities …………….
Long-term debt
Long-term notes payable ……………….
450,000
Bonds payable ………………………………
Total long-term liabilities ……………
Stockholder’s equity
Paid-in capital
Common stock ($5 par) …………….
$500,000
Additional paid-in capital…………..
40,000
540,000
retained earnings ………………………..
745,000
Total stockholders’ equity ……….
(**Retained earnings computation is on the next page.)
E5-12B (Continued)
**Computation of Retained Earnings:
Sales ……………………………………………………………………….
$4,050,000
Investment revenue ………………………………………………….
31,500
Extraordinary gain ……………………………………………………
40,000
Cost of goods sold …………………………………………………..
Selling expenses ………………………………………………………
Administrative expenses …………………………………………..
Interest expense ………………………………………………………
(105,500)
Net income ………………………………………………………………
$ 166,000
Beginning retained earnings……………………………………..
$ 109,000
Prior period adjustment—depreciation error ………………
(70,000)
Beginning retained earnings, restated ……………………….
39,000
Net income ………………………………………………………………
166,000
Ending retained earnings ………………………………………….
$ 205,000
E5-13B (15–20 minutes)
(a)
1.
(f)
1.
(k)
5.
(d)
2.
(i)
3.
E5-14B (25–35 minutes)
DUONG INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………………
$ 88,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense …………………………….
Increase in accounts receivable ……………..
Increase in accounts payable …………………
16,000
Net cash provided by operating activities …….
Cash flows from investing activities
Purchase of equipment ……………………………….
Cash flows from financing activities
Issuance of common stock ………………………….
40,000
Payment of cash dividends ………………………….
(46,000)
Net cash used by financing activities ……………
Net increase in cash …………………………………………
Cash at beginning of year …………………………………
26,000
E5-15B (25–35 minutes)
(a) GARCIA CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ………………………………………………
$400,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense …………………………
Loss on sale of investments………………..
Decrease in accounts receivable …………
Decrease in current liabilities ………………
(42,500)
37,500
Net cash provided by operating activities ….
437,500
Cash flows from investing activities……………….
Sale of investments
[($185,000 – $130,000) – $25,000] ……………
30,000
Purchase of equipment …………………………….
(145,000)
Cash flows from financing activities ………………
Payment of cash dividends ………………………
Cash at beginning of year ……………………………..
Cash at end of year ……………………………………….
(b)
Free Cash Flow Analysis
Net cash provided by operating activities …………………….
$437,500
Less: Purchase of equipment …………………………………….
Dividends ………………………………………………………..
E5-16B (25–35 minutes)
(a) GOKHALE CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………….
$187,500
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………………………..
Increase in accounts receivable …………
Decrease in inventory ………………………..
13,500
Decrease in accounts payable ……………
10,500
Net cash provided by operating activities…..
Cash flows from investing activities ……………..
Sale of land …………………………………………….
58,500
Purchase of equipment …………………………..
(90,000)
Net cash used by investing activities ……….
(31,500)
Cash flows from financing activities
Payment of cash dividends ……………………..
Net increase in cash …………………………………….
Cash at beginning of year …………………………….
33,000
The issuance of common stock to retire $75,000 of bonds payable is a
significant noncash financing transaction which would be disclosed in
notes accompanying the financial statements.
E5-16B (Continued)
(b) Current cash debt coverage ratio =
Cash debt coverage ratio =
Free Cash Flow Analysis
Net cash provided by operating activities …………………..
$198,000
Less: Purchase of equipment ……………………………………
(90,000)
Dividends ……………………………………………………….
E5-17B (25–35 minutes)
(a) GONZALVO CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………….
$66,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment ……………………
Depreciation expense …………………………..
Patent amortization ………………………………
Increase in current liabilities …………………
15,600
Net cash provided by operating activities ……
Cash flows from investing activities
Sale of equipment ……………………………………..
12,000
Addition to building …………………………………..
(32,400)
Investment in stock……………………………………
(19,200)
Net cash used by investing activities ………….
(39,600)
Cash flows from financing activities
Issuance of bonds ……………………………………..
60,000
(36,000)
Purchase of treasury stock ………………………..
(13,200)
Net cash provided by financing activities ……
aAn additional proof to arrive at the increase in cash is provided as
follows:
Total current assets—end of period ……………..
$355,800
[from part (b)]
Total current assets—beginning of period …….
Increase in current assets during the period …
Increase in current assets other than cash ……
34,800
E5-17B (Continued)
(b) GONZALVO CORPORATION
Balance Sheet
December 31, 2014
Assets
Current assets ……………………………….
$355,800b
Long-term investments …………………..
19,200
Property, plant, and equipment ……….
Land ………………………………………..
$ 36,000
Building ($144,000 + $32,400) …….
($36,000 + $4,800) …………………..
Equipment ($108,000 – $24,000) …
($13,200 – $9,600 + $10,800) ……
69,600
Total……………………………………
($48,000 – $3,000) ………………………..
Liabilities and Stockholders’ Equity
Current liabilities ($180,000 + $15,600) ……………
$195,600
Long-term liabilities
Bonds payable ($120,000 + $60,000) …………….
180,000
Total liabilities ………………………………………
375,600
Common stock …………………………..………………
($52,800 + $66,000 – $36,000) ……………………
Total……………………………………………………..
Less: Cost of treasury stock ………………………
(13,200)
Total stockholders’ equity ……………………..
285,600
b
The amount determined for current assets is computed last and is a
“plug” figure. That is, total liabilities and stockholders’ equity is
computed because information is available to determine this amount.
E5-18B (25 minutes)
(a) HARRISON CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………….
$62,500*
Adjustments to net income:
Depreciation expense ………………………….
$13,500
Increase in accounts receivable ……………
(8,000)
Decrease in inventory ………………………….
Decrease in accounts payable ……………..
Net cash provided by operating activities …..
Cash flows from investing activities………………..
Sale of land ………………………………………………
Purchase of building …………………………………
Net cash used by investing activities …………
Cash flows from financing activities ……………….
Payment of cash dividends ……………………….
(30,000)
Net increase in cash ………………………………………
Cash at beginning of year ………………………………
The issuance of common stock to convert $25,000 of bonds payable is a
significant noncash financing transaction which would be disclosed in
notes accompanying the financial statements.
*Beginning retained earnings + Net income – Dividends = Ending retained
earnings
E5-18B (Continued)
2014
2013
(b) Current ratio
$167,500
= 9.9
$138,500
= 5.9
$ 17,000
$ 23,500
Free Cash Flow Analysis
Net cash provided by operating activities ………………………..
$ 66,000
Less: Purchase of building …………………………………………….