Assignment: Prepare the operating activities section—indirect method.
Question 1: The current sections of Blues Traveler Co. balance sheets at December 31, 2005 and 2006, are presented below.
| BLUES TRAVELER CO. |
| Comparative Balance Sheets (partial) |
| December 31, 2006 |
|
|
|
|
|
|
2005 |
2006 |
| Current assets |
|
|
|
|
|
|
| Cash |
|
|
|
|
|
$105,000 |
$ 99,000 |
| Accounts receivable |
|
|
|
|
$110,000 |
$ 85,000 |
| Inventory |
|
|
|
|
|
$171,000 |
$186,000 |
| Prepaid expenses |
|
|
|
|
$ 27,000 |
$ 32,000 |
| Total current assets |
|
|
|
|
$413,000 |
$402,000 |
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
| Accrued expenses payable |
|
|
|
$ 15,000 |
$ 5,000 |
| Accounts payable |
|
|
|
|
$ 88,000 |
$ 92,000 |
| Total current liabilities |
|
|
|
$103,000 |
$ 97,000 |
Blues Traveler’s net income for 2006 was $163,000. Depreciation expense was $30,000.
Instructions:
Prepare the operating activities section of Blues Traveler’s statement of cash flows for the year ended December 31, 2006, using the indirect method.
Compute selected ratios.
Question 2: Marcus Company has the following comparative balance sheet data.
| Balance Sheets |
| December 31, 2006 |
|
|
|
|
|
|
2006 |
2005 |
| Cash |
|
|
|
|
|
$ 15,000 |
$ 30,000 |
| Receivables (net) |
|
|
|
|
$ 70,000 |
$ 60,000 |
| Inventories |
|
|
|
|
$ 60,000 |
$ 50,000 |
| Plant assets (net) |
|
|
|
|
$ 20,000 |
$180,000 |
|
|
|
|
|
|
$345,000 |
$320,000 |
|
|
|
|
|
|
|
|
| Accounts payable |
|
|
|
|
$ 40,000 |
$ 60,000 |
| Mortgage payable (15%) |
|
|
|
$100,000 |
$100,000 |
| Common stock, $10 par |
|
|
|
$140,000 |
$120,000 |
| Retained earnings |
|
|
|
|
$ 65,000 |
$ 40,000 |
|
|
|
|
|
|
$345,000 |
$320,000 |
Additional information for 2006:
1. Net income was $25,000.
2. Sales on account were $420,000. Sales returns and allowances were $20,000.
3. Cost of goods sold was $198,000.
4. The allowance for doubtful accounts was $2,500 on December 31, 2006, and $2,000 on December 31, 2005.
Instructions:
Compute the following ratios at December 31, 2006.
(a) Current.
(b) Acid-test.
(c) Receivables turnover.
(d) Inventory turnover.