Problem 1
The following information pertains to Triton Company for 2012.
Beginning Inventory 360 units @ $13
Units Purchased 1320 units @ $18
Ending inventory consisted of 160 units. Triton sold 1520 units at $30 each. All purchases and sales were made with cash.
REQUIRED
a. Compute the gross margin for Triton Company using the following cost flow assumptions:
(1) FIFO, (2) LIFO, and (3) weighted average.
b. What is the dollar amount of difference in net income between using FIFO versus LIFO? (Ignore income tax considerations.)
c. Determine the cash flow from operating activities, using each of the three cost flow assumptions listed in Requirement a . Ignore the effect of income taxes. Explain why these cash flows have no differences.
Problem 2
The following transactions apply to Peats Co. for 2014, its first year of operations.
1. Issued $480,000 of common stock for cash.
2. Provided $392,000 of services on account.
3. Collected $308,000 cash from accounts receivable.
4. Loaned $50,000 to Horne Co. on October 1, 2014. The note had a one-year term to maturity and an 8% interest rate.
5. Paid $148,000 of salaries expense for the year.
6. Paid a $11,200 dividend to the stockholders.
7. Recorded the accrued interest income on December 31, 2014 (see item 4).
8. Uncollectible accounts expense is estimated to be 1% of service revenue on account.
REQUIRED
a. Show the effects of the above transactions in a horizontal statements model.
b. Prepare the income statement, balance sheet, and statement of cash flows for 2014.
Problem 3
The following events apply to The Crust King Factory for the 2014 fiscal year:
1. Received $84,000 cash from the issue of common stock.
2. Paid $74,000 for a new Crust King oven.
3. Earned $124,000 in cash revenue.
4. Paid $58,000 cash for salaries expense.
5. Paid $27,200 cash for operating expenses.
6. Adjusted the records to reflect the use of the Crust King oven. The oven, purchased on January 1, 2014, has an expected useful life of five years and an estimated salvage value of $14,000 . Use straight-line depreciation. The adjusting entry was made as of December 31, 2014.
REQUIRED
a. Record the above transactions in a horizontal statements model
b. What amount of depreciation expense would The Crust King Factory report on the 2014 income statement?
c. What amount of accumulated depreciation would The Crust King Factory report on the December 31, 2014, balance sheet?
d. Would the cash flow from operating activities be affected by depreciation in 2014?
Problem 4
On January 1, 2012, Mountain Power Company overhauled four turbine engines that generate power for customers. The overhaul resulted in a slight increase in the capacity of the engines to produce power.
Such overhauls occur regularly at two-year intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year's $100,000 cash cost in the engine asset account or to expense it as a maintenance expense. Assume that the engines have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation.
REQUIRED
a. Determine the amount of additional depreciation expense Mountain would recognize in 2012 and 2013 if the cost were capitalized in the Engine account.
b. Determine the amount of expense Mountain would recognize in 2012 and 2013 if the cost were recognized as maintenance expense.
c. Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were capitalized and expensed through depreciation charges.
d. Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were recognized as maintenance expense.
Problem 5
Seaver Company began operations when it acquired $180,000 cash from the issue of common stock on January 1, 2011. The cash acquired was immediately used to purchase equipment for $180,000 that had a $36,000 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $18,000 cash. KC uses straight-line depreciation.
2011 2012 2013 2014 2015
Revenue $33,600 $36,800 $38,400 $31,200 0
REQUIRED
Prepare income statements, balance sheets, and statements of cash flows for each of the five years.
Problem 6
The following transactions apply to Gsellman Equipment Sales Corp. for 2012:
1. The business was started when Gsellman Corp. received $260,000 from the issue of common stock.
2. Purchased $760,000 of merchandise on account.
3. Sold merchandise for $960,000 cash (not including sales tax). Sales tax of 8% is collected when the merchandise is sold. The merchandise had a cost of $580,000
4. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the warranty claims would amount to 4% of merchandise sales.
5. Paid the sales tax of 8% to the state agency on $640,000 of the sales.
6. On September 1, 2012, borrowed $100,000 from the local bank. The note had a 8% annual interest rate and matures on August 31, 2013.
7. Paid $25,600 for warranty repairs during the year.
8. Paid $248,000 cash in operating expenses for the year.
9. Paid $544,000 of accounts payable.
10. Recorded accrued interest payable at the end of the year.
REQUIRED
a. Record the above transactions in a horizontal statements model.
b. Prepare the income statement, balance sheet, and statement of cash flows for 2012.
c. What is the total amount of current liabilities at December 31, 2012?
Problem 7
The following events apply to Koosman Co. for fiscal 2012 and 2013 Borrowed $72,000 from the local bank on April 1, 2012, when the company was started.
The note had an 8 percent annual interest rate and a one-year term to maturity.
Recognized $188,000 of revenue on account in 2012.
Recognized $252,000 of revenue on account in 2013.
Collected $164,000 cash from accounts receivable in 2012.
Collected $246,000 cash from accounts receivable in 2013.
Paid $116,000 of salaries expense in 2012.
Paid $138,000 of salaries expense in 2013.
Paid the loan and interest at the maturity date.
REQUIRED
a. Record the above transactions in a horizontal statements model.
b. What amount of net cash flow from operating activities would be reported on the 2012 cash flow statement?
c. What amount of interest expense would be reported on the 2012 income statement?
d. What amount of total liabilities would be reported on the December 31, 2012, balance sheet?
e. What amount of retained earnings would be reported on the December 31, 2012, balance sheet?
f. What amount of cash flow from financing activities would be reported on the 2012 statement of cash flows?
g. What amount of interest expense would be reported on the 2013 income statement?
h. What amount of cash flows from operating activities would be reported on the 2013 cash flow statement?
i. What amount of assets would be reported on the December 31, 2013, balance sheet?
Problem 8
On October 1, 2012, Smart Corporation declared a $300,000 cash dividend to be paid on December 30 to shareholders of record on November 20.
REQUIRED
Record the events occurring on October 1, November 20, and December 30 in a horizontal statements model. In the Cash Flow column,
indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).
Problem 9
B&S Corporation had the following stock issued and outstanding at January 1, 2012:
1. 520,000 shares of $5 par common stock.
2. 7,500 shares of $100 par, 5 percent, noncumulative preferred stock On May 10, B&S Corporation declared the annual cash dividend on its 7,500 shares of preferred stock and a $1 per share dividend for the common shareholders. The dividends will be paid on June 15 to the shareholders of record on May 30.
REQUIRED
Determine the total amount of dividends to be paid to the preferred shareholders and common shareholders.