1. (Computation of Present Value) Using the appropriate interest table, compute the present values of the following periodic amountsdue at the end of the designated periods.
1. $30,000 receivable at the end of each period for 8 periods compounded at 12%. 2. $30,000 payments to be made at the end of each period for 16 periods at 9%.
3.$30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.
2. (Unknown Periods and Unknown Interest Rate) Consider the following independent situations.
1. Mike Finley wishes to become a millionaire. His money market fund has a balance of $92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired $1,000,000?
2.Assume that Serena Williams desires to accumulate $1 million in 15 years using her money market fund balance of $182,696. At what interest rate must Serena's investment compound annually?
3.(SCF-Indirect Method) Condensed financial data of Pat Metheny Company for 2008 and 2007 are presented.
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PAT METHENY COMPANY
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COMPARATIVE BALANCE SHEET
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AS OF DECEMBER 31, 2008 AND 2007
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2008
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2007
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Cash
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$1,800
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$1,150
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Receivables
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1,750
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1,300
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Inventory
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1,600
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1,900
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Plant assets
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1,900
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1,700
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Accumulated depreciation
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(1,200)
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(1,170)
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Long-term investments (Held-to-maturity)
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1,300
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1,420
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$7,150
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$6,300
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Accounts payable
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$1,200
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$ 900
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Accrued liabilities
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200
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250
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Bonds payable
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1,400
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1,550
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Capital stock
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1,900
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1,700
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Retained earnings
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2,450
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1,900
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$7,150
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$6,300
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PAT METHENY COMPANY
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INCOME STATEMENT
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FOR THE YEAR ENDED DECEMBER 31, 2008
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Sales
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$6,900
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Cost of goods sold
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4,700
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Gross margin
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2,200
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Selling and administrative expense
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930
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Income from operations
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1,270
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Other revenues and gains
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|
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Gain on sale of investments
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80
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Income before tax
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1,350
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Income tax expense
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540
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Net income
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810
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Cash dividends
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260
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Income retained in business
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$ 550
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Additional information: During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2008.
Instructions
Prepare a statement of cash flows using the indirect method.
4. (SCF-Direct Method) Data for Pat Metheny Company are presented in E23-11
Instructions
Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)
P23-7 (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.
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GEORGE WINSTON COMPANY
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COMPARATIVE STATEMENT OF FINANCIAL POSITION
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AS OF MAY 31
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2008
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2007
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Current assets
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|
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Cash
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$ 33,250
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$ 20,000
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Accounts receivable
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80,000
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58,000
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Merchandise inventory
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210,000
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250,000
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Prepaid expenses
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9,000
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7,000
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Total current assets
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332,250
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335,000
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Plant assets
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|
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Plant assets
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600,000
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502,000
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Less: Accumulated depreciation
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150,000
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125,000
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Net plant assets
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450,000
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377,000
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Total assets
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$782,250
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$712,000
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Current liabilities
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|
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Accounts payable
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$123,000
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$115,000
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Salaries payable
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47,250
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72,000
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Interest payable
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27,000
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25,000
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Total current liabilities
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197,250
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212,000
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Long-term debt
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|
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Bonds payable
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70,000
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100,000
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Total liabilities
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267,250
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312,000
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Shareholders' equity
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|
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Common stock, $10 par
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370,000
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280,000
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Retained earnings
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145,000
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120,000
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Total shareholders' equity
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515,000
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400,000
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Total liabilities and shareholders' equity
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$782,250
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$712,000
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GEORGE WINSTON COMPANY
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INCOME STATEMENT
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FOR THE YEAR ENDED MAY 31, 2008
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Sales
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$1,255,250
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Cost of merchandise sold
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722,000
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Gross profit
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533,250
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Expenses
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|
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Salary expense
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252,100
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Interest expense
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75,000
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Other expenses
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8,150
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Depreciation expense
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25,000
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Total expenses
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360,250
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Operating income
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173,000
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Income tax expense
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43,000
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Net income
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$ 130,000
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The following is additional information concerning Winston's transactions during the year ended May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The "other expenses" are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
b. Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)