Q1. Will the income statement include cash dividends declared and paid in the reporting period? Yes or No?
Q2. Explain the journal entries, for the receipt of cash, and for the first interest payment, in your own words, when, as a borrower, our company does the following:
A. Issues Bonds at Face Value
B. Issues Bonds at a discount
C. Issues Bonds at a premium
(Hint: your answer for each independent situation [A, B, and C] should include the phrases "Credit to Bonds Payable" and "Contract Interest Rate")
Q3. Explain the change in the investment account for the year, for each of the following independent situations, when the investment is accounted for using the equity method:
A. The company they invested in has a net loss for the year
B. The company they invested in pays earns a profit and pays a cash dividend
Q4. What do we learn by using the vertical analysis process for a company when analyzing the income statement and the balance sheet? That is, how would you explain to someone what you learn about a company by completing a vertical analysis of their SEC 10K (a) income statement and (b) balance sheet?
Go to next page for Question 6 5 requiring you to complete a Statement of Cash Flows using the indirect method.
Q5. Wheelhorse Products' comparative balance sheets are presented below.
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Wheelhorse Products Inc. Comparative Balance Sheets 31-Dec
|
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2015
|
2014
|
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Cash
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$24,680
|
$10,820
|
|
Accounts receivable
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22,000
|
23,630
|
|
Prepaid Insurance
|
2,800
|
2,400
|
|
Land
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14,540
|
15,410
|
|
Buildings
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58,000
|
42,400
|
|
Accumulated depreciation-buildings
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(15,200)
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(12,790)
|
|
Total
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$106,820
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$81,870
|
|
|
|
|
Accounts payable
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$12,520
|
$8,945
|
|
Unearned revenue
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$2,400
|
$18,000
|
|
Common stock
|
50,000
|
20,000
|
|
Retained earnings
|
41,900
|
34,925
|
|
Total
|
$106,820
|
$81,870
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Additional information:
Net income was $18,475. Dividends declared and paid were $11,500. All other changes in noncurrent account balances had a direct effect on cash flows, except the change in accumulated depreciation. The land was sold for $20,000
Required: Prepare a statement of cash flows for the year ended December 31, 2015 using the indirect method. (Hint: for any accounts where the balance changed, create a T account or record other analysis for your review. You might make a column of changes, so you can see if a balance increased or decreased and by how much. You do not need to turn this in but you can. You may wish to use Excel for this problem. Copy and paste the balance sheet into your Excel file. If you use Excel you can submit a separate file for the statement of cash flow problem.