Prepare a statement of cash flows using the indirect method


Problem 1 - Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2014. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2009. The client provides you with the information below.

ALMADEN CORPORATION BALANCE SHEET DECEMBER 31, 2014

Assets

Liabilities

Current assets

$1,889,260

Current liabilities

$966,550

Other assets

5,181,169

Long-term liabilities

1,474,940



Capital

4,628,939


$7,070,429


$7,070,429

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The supplementary information below is also provided.

1. On May 1, 2014, the corporation issued at 95.3, $783,600 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.

2. The bookkeeper made the following mistakes.

(a) In 2012, the ending inventory was overstated by $184,160. The ending inventories for 2013 and 2014 were correctly computed.

(b) In 2014, accrued wages in the amount of $225,310 were omitted from the balance sheet, and these expenses were not charged on the income statement.

(c) In 2014, a gain of $176,330 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.

3. A major competitor has introduced a line of products that will compete directly with Almaden's primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor's line will be of comparable quality but priced 50% below Almaden's line. The competitor announced its new line on January 14, 2015. Almaden indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.

4. You learned on January 28, 2015, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden's two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.

Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.

Problem 2 - Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2015.


A

B

C

D

E

Sales revenue

$57,700

$77,000

$582,100

$35,100

$54,900

Cost of goods sold

20,600

51,100

273,000

20,600

31,800

Operating expenses

10,060

57,700

244,800

12,110

18,600

Total expenses

30,660

108,800

517,800

32,710

50,400

Operating profit (loss)

$27,040

$(31,800)

$64,300

$2,390

$4,500

Identifiable assets

$39,000

$89,900

$508,000

$74,500

$51,100

Sales of segments B and C included intersegment sales of $24,610 and $101,770, respectively.

(a) Determine which of the segments are reportable based on the:

(1) Revenue test.

(2) Operating profit (loss) test.

(3) Identifiable assets test.

(b) Prepare the necessary disclosures required by GAAP.

Problem 3 - The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue


$6,894,890

Cost of goods sold



   Beginning inventory

$1,893,390


   Purchases

4,385,910


   Goods available for sale

6,279,300


   Ending inventory

1,600,960


   Cost of goods sold


4,678,340

Gross profit


2,216,550

Operating expenses



   Selling expenses

441,730


   Administrative expenses

691,990

1,133,720

Net income


$1,082,830

Additional information:

1. Accounts receivable decreased $310,140 during the year.

2. Prepaid expenses increased $172,300 during the year.

3. Accounts payable to suppliers of merchandise decreased $277,480 during the year.

4. Accrued expenses payable decreased $129,500 during the year.

5. Administrative expenses include depreciation expense of $69,330.

Prepare the operating activities section of the statement of cash flows using the direct method.

Problem 4 - The accounts below appear in the ledger of Anita Baker Company.


Retained Earnings

Dr.

Cr.

Bal.

Jan. 1, 2014

Credit Balance



$42,900

Aug. 15

Dividends (cash)

$15,540


27,360

Dec. 31

Net Income for 2014


$49,880

77,240







Equipment

Dr.

Cr.

Bal.

Jan. 1, 2014

Debit Balance



$139,460

Aug. 3

Purchase of Equipment

$61,480


200,940

Sept. 10

Cost of Equipment Constructed

47,600


248,540

Nov. 15

Equipment Sold


$66,190

182,350







Accumulated Depreciation-Equipment

Dr.

Cr.

Bal.

Jan. 1, 2014

Credit Balance



$84,570

Apr. 8

Extraordinary Repairs

$21,900


62,670

Nov. 15

Accum. Depreciation on Equipment Sold

25,510


37,160

Dec. 31

Depreciation for 2014


$16,050

53,210

From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was $5,230.

Problem 5 - The comparative balance sheets for Hinckley Corporation show the following information.


December 31


2014

2013

Cash

$38,140

$14,690

Accounts receivable

15,030

10,650

Inventory

20,890

9,490

Investments

-0-

3,770

Buildings

-0-

30,630

Equipment

47,280

21,460

Patents

5,600

6,840


$126,940

$97,530




Allowance for doubtful accounts

$3,810

$5,060

Accumulated depreciation-equipment

2,870

5,100

Accumulated depreciation-building

-0-

6,120

Accounts payable

5,600

3,770

Dividends payable

-0-

4,340

Notes payable, short-term (nontrade)

2,420

3,820

Long-term notes payable

32,710

25,980

Common stock

43,570

33,290

Retained earnings

35,960

10,050


$126,940

$97,530

Additional data related to 2014 are as follows.

1. Equipment that had cost $12,820 and was 40% depreciated at time of disposal was sold for $2,540.

2. $10,280 of the long-term note payable was paid by issuing common stock.

3. Cash dividends paid were $4,340.

4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $32,270 (net of $2,600 taxes).

5. Investments (available-for-sale) were sold at $1,300 above their cost. The company has made similar sales and investments in the past.

6. Cash was paid for the acquisition of equipment.

7. A long-term note for $17,010 was issued for the acquisition of equipment.

8. Interest of $2,120 and income taxes of $8,280 were paid in cash.

Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.

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Accounting Basics: Prepare a statement of cash flows using the indirect method
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