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Problem 1 - Use the following selected data from Business Solutions' income statement for the three months ended March 31, 2012, and from its March 31, 2012, balance sheet to complete the requirements below: computer services revenue, $26,295; net sales (of goods), $21,546; total sales and revenue, $47,841; cost of goods sold, $14,664; net income, $19,818; quick assets, $90,472; current assets, $95,256; total assets, $122,968; current liabilities, $725; total liabilities, $725; and total equity, $122,243.

Required:

1. Compute the gross margin ratio (both with and without services revenue) and net profit margin ratio.

2. Compute the current ratio and acid-test ratio.

3. Compute the debt ratio and equity ratio.

4. What percent of its assets are current? What percent are long term?

Problem 2 - Cash flows from operating activities

BEKHAM COMPANY
Income Statement
For Year Ended December 31, 2011

Sales


$2,408,000

Cost of goods sold


1,179,920

Gross profit


1,228,080

Operating expenses



Salaries expense

$329,896


Depreciation expense

57,792


Rent expense

65,016


Amortization expenses-Patents

7,224


Utilities expense

26,488

486,416



741,664

Gain on sale of equipment


9,632

Net income


$751,296

Changes in current asset and current liability accounts for the year that relate to operations follow.

Accounts receivable

$21,900

increase

Accounts payable

$10,650

decrease

Merchandise inventory

30,675

increase

Salaries payable

1,250

decrease

Use the above income statement and information about changes in noncash current assets and current liabilities to prepare only the cash provided or used by operating activities section of the statement of cash flows for this company using the direct method.

Problem 3 - Roney Company's calendar-year 2011 income statement shows the following: Net Income, $471,000; Depreciation Expense, $58,404; Amortization Expense, $11,775; Gain on Sale of Plant Assets, $3,600. An examination of the company's current assets and current liabilities reveals the following changes (all from operating activities): Accounts Receivable decrease, $12,800; Merchandise Inventory decrease, $37,120; Prepaid Expenses increase, $3,800; Accounts Payable decrease, $9,500; Other Payables increase, $1,444.

Use the indirect method to compute cash flow from operating activities.

Problem 4 - Cash flows from operating activities

BEKHAM COMPANY
Income Statement
For Year Ended December 31, 2011

Sales


$1,961,000

Cost of goods sold


960,890

Gross profit


1,000,110

Operating expenses



Salaries expense

$268,657


Depreciation expense

47,064


Rent expense

52,947


Amortization expenses-Patents

5,883


Utilities expense

21,571

396,122



603,988

Gain on sale of equipment


7,844

Net income


$611,832

Changes in current asset and current liability accounts for the year that relate to operations follow.

Accounts receivable

$23,950

increase

Accounts payable

$11,575

decrease

Merchandise inventory

38,500

increase

Salaries payable

2,550

decrease

Use the above income statement and information about changes in noncash current assets and current liabilities to prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method.

Problem 5 - Oregon Company disclosed the following information for its recent calendar year.

Revenues

$85,000

Expenses


Salaries expense

74,000

Utilities expense

31,000

Depreciation expense

29,400

Other expenses

7,200

Net loss

$(56,600)

Accounts receivable decrease

$27,000

Purchased a machine

19,000

Salaries payable increase

24,000

Other accrued liabilities decrease

13,000

Required:

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

Problem 6 -

a. Sold land costing $330,000 for $430,000 cash, yielding a gain of $30,000.

b. Paid $112,000 cash for a new truck.

c. Equipment with a book value of $81,000 and an original cost of $166,000 was sold at a loss of $31,000.

d. Long-term investments in stock were sold for $94,900 cash, yielding a gain of $17,000.

Use the above information to determine this company's cash flows from investing activities.

Problem 7 -

a. Net income was $466,000.

b. Issued common stock for $70,000 cash.

c. Paid cash dividend of $18,000.

d. Paid $125,000 cash to settle a note payable at its $125,000 maturity value.

e. Paid $117,000 cash to acquire its treasury stock.

f. Purchased equipment for $86,000 cash.

Use the above information to determine this company's cash flows from financing activities.

Problem 8 -

Cash and cash equivalents balance, December 31, 2010

$19,000

Cash and cash equivalents balance, December 31, 2011

53,428

Cash received as interest

1,900

Cash paid for salaries

55,100

Bonds payable retired by issuing common stock (no gain or loss on retirement)

145,000

Cash paid to retire long-term notes payable

95,000

Cash received from sale of equipment

46,550

Cash received in exchange for six-month note payable

19,000

Land purchased by issuing long-term note payable

84,100

Cash paid for store equipment

18,050

Cash dividends paid

11,400

Cash paid for other expenses

30,400

Cash received from customers

368,600

Cash paid for merchandise

191,672

Use the above information about the cash flows of Kansas Company to prepare a complete statement of cash flows (direct method) for the year ended December 31, 2011. Use a note disclosure for any noncash investing and financing activities.

Problem 9 - Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's balance sheets and income statement follow.

KAZAAM COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010


2011

2010

Assets



Cash

$49,000

$74,000

Accounts receivable

65,880

57,000

Merchandise inventory

277,500

252,000

Prepaid expenses

1,250

1,800

Equipment

158,500

107,000

Accum. depreciation-Equipment

(36,875)

(46,000)

Total assets

$515,255

$445,800

Liabilities and Equity



Accounts payable

$60,255

$112,000

Short-term notes payable

10,000

7,000

Long-term notes payable

67,500

48,750

Common stock, $5 par value

156,000

147,000

Paid-in capital in excess of par, common stock

27,000

0

Retained earnings

194,500

131,050

Total liabilities and equity

$515,255

$445,800

 

KAZAAM COMPANY Income Statement For Year Ended December 31, 2011

Sales


$584,500

Cost of goods sold


284,000

Gross profit


300,500

Operating expenses



Depreciation expense

$20,000


Other expenses

134,000

154,000

Other gains (losses)



Loss on sale of equipment


5,750

Income before taxes


140,750

Income taxes expense


23,000

Net income


$117,750

Additional Information on Year 2011 Transactions

a. The loss on the cash sale of equipment was $5,750 (details in b).

b. Sold equipment costing $46,500, with accumulated depreciation of $29,125, for $11,625 cash.

c. Purchased equipment costing $98,000 by paying $30,000 cash and signing a long-term note payable for the balance.

d. Borrowed $3,000 cash by signing a short-term note payable.

e. Paid $49,250 cash to reduce the long-term notes payable.

f. Issued 1,800 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $54,300.

Required:

1. Prepare a complete statement of cash flows; report its operating activities using the indirect method.

Problem 10 - Kazaam Company, a merchandiser, recently completed its calendar-year 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company's balance sheets and income statement follow.

KAZAAM COMPANY
Comparative Balance Sheets
December 31, 2011 and 2010


2011

2010

Assets



Cash

$49,800

$74,000

Accounts receivable

65,850

59,000

Merchandise inventory

277,000

252,500

Prepaid expenses

1,250

1,900

Equipment

159,000

107,000

Accum. depreciation-Equipment

(42,375)

(52,000)

Total assets

$510,525

$442,400

Liabilities and Equity



Accounts payable

$50,100

$111,000

Short-term notes payable

12,000

7,000

Long-term notes payable

62,500

48,000

Common stock, $5 par value

162,750

151,000

Paid-in capital in excess of par, common stock

35,250

0

Retained earnings

187,925

125,400

Total liabilities and equity

$510,525

$442,400

 

KAZAAM COMPANY
Income Statement
For Year Ended December 31, 2011

Sales


$583,500

Cost of goods sold


281,000

Gross profit


302,500

Operating expenses



Depreciation expense

$20,000


Other expenses

132,400

152,400

Other gains (losses)



Loss on sale of equipment


5,625

Income before taxes


144,475

Income taxes expense


24,250

Net income


120,225

Additional Information on Year 2011 Transactions

a. The loss on the cash sale of equipment was $5,625 (details in b).

b. Sold equipment costing $46,875, with accumulated depreciation of $29,625, for $11,625 cash.

c. Purchased equipment costing $98,875 by paying $25,000 cash and signing a long-term note payable for the balance.

d. Borrowed $5,000 cash by signing a short-term note payable.

e. Paid $59,375 cash to reduce the long-term notes payable.

f. Issued 2,350 shares of common stock for $20 cash per share.

g. Declared and paid cash dividends of $57,700.

Required: Prepare a complete statement of cash flows using a spreadsheet report its operating activities using the indirect method.

a. Net income was $120,225.

b. Accounts receivable increased.

c. Merchandise inventory increased.

d. Prepaid expenses decreased.

e. Accounts payable decreased.

f. Depreciation expense was $20,000.

g. Sold equipment costing $46,875, with accumulated depreciation of $29,625, for $11,625 cash. This yielded a loss of $5,625.

h. Purchased equipment costing $98,875 by paying $25,000 cash and (i.) by signing a long-term note payable for the balance.

j. Borrowed $5,000 cash by signing a short-term note payable.

k. Paid $59,375 cash to reduce the long-term notes payable.

l. Issued 2,350 shares of common stock for $20 cash per share.

m. Declared and paid cash dividends of $57,700.

Problem 11 - Galley Corp., a merchandiser, recently completed its 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company's balance sheets and income statement follow.

GALLEY CORPORATION
Comparative Balance Sheets
December 31, 2011 and 2010


2011

2010

Assets



Cash

$169,000

$137,000

Accounts receivable

85,000

73,000

Merchandise inventory

605,000

505,000

Equipment

350,000

283,000

Accum. depreciation-Equipment

(158,000)

(101,000)

Total assets

$1,051,000

$897,000

Liabilities and Equity



Accounts payable

142,000

$114,000

Income taxes payable

28,000

25,000

Common stock, $2 par value

596,000

566,000

Paid-in capital in excess of par value, common stock

204,000

159,000

Retained earnings

81,000

33,000

Total liabilities and equity

$1,051,000

$897,000

 

GALLEY CORPORATION
Income Statement
For Year Ended December 31, 2011

Sales


$1,795,000

Cost of goods sold


1,087,000

Gross profit


708,000

Operating expenses



Depreciation expense

$57,000


Other expenses

496,000

553,000

Income before taxes


155,000

Income taxes expense


22,000

Net income


$133,000

Additional Information on Year 2011 Transactions

a. Purchased equipment for $67,000 cash.

b. Issued 15,000 shares of common stock for $5 cash per share.

c. Declared and paid $85,000 in cash dividends.

Required: Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method.

Problem 12 - Galley Corp., a merchandiser, recently completed its 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company's balance sheets and income statement follow.

GALLEY CORPORATION
Comparative Balance Sheets
December 31, 2011 and 2010


2011

2010

Assets



Cash

$215,726

$121,590

Accounts receivable

92,355

83,955

Merchandise inventory

635,840

555,840

Equipment

402,765

309,765

Accum. depreciation-Equipment

(162,650)

(106,150)

Total assets

$1,184,036

$965,000

Liabilities and Equity



Accounts payable

$127,790

$63,690

Income taxes payable

28,390

25,090

Common stock, $2 par value

600,400

566,400

Paid-in capital in excess of par value, common stock

228,375

168,875

Retained earnings

199,081

140,945

Total liabilities and equity

$1,184,036

$965,000

 

GALLEY CORPORATION
Income Statement
For Year Ended December 31, 2011

Sales


$1,949,000

Cost of goods sold


1,208,380

Gross profit


740,620

Operating expenses



Depreciation expense

$56,500


Other expenses

506,311

562,811

Income before taxes


177,809

Income taxes expense


34,673

Net income


$143,136

Additional Information on Year 2011 Transactions

a. Purchased equipment for $93,000 cash.

b. Issued 17,000 shares of common stock for $5.50 cash per share.

c. Declared and paid $85,000 in cash dividends.

Required: Prepare a complete statement of cash flows using a spreadsheet; report operating activities under the indirect method.

a. Net income was $143,136.

b. Accounts receivable increased.

c. Merchandise inventory increased.

d. Accounts payable decreased.

e. Income taxes payable increased.

f. Depreciation expense was $56,500.

g. Purchased equipment for $93,000 cash.

h. Issued 17,000 shares at $5.50 cash per share.

i. Declared and paid $85,000 of cash dividends.

Problem 13 - Rapture Company's 2011 income statement and selected balance sheet data at December 31, 2010 and 2011.

RAPTURE COMPANY
Income Statement
For Year Ended December 31, 2011

Sales revenue

$62,000,000

Expenses


Cost of goods sold

21,000,000

Depreciation expense

4,500,000

Salaries expense

11,000,000

Rent expense

3,000,000

Insurance expense

1,800,000

Interest expense

1,900,000

Utilities expense

1,400,000

Net income

$17,400,000

 

RAPTURE COMPANY
Selected Balance Sheet Accounts

At December 31

2011

2010

Accounts receivable

$390,000

$400,000

Inventory

86,000

68,000

Accounts payable

116,000

123,000

Salaries payable

48,000

34,000

Utilities payable

11,000

8,000

Prepaid insurance

15,000

16,000

Prepaid rent

9,000

12,000

Required: Prepare the cash flows from operating activities section only of the company's 2011 statement of cash flows using the indirect method.

Accounting Basics, Accounting

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