Research and find financial statements for two companies of your choosing. Drawing on information from this module and the course, analyze the statements and write an essay summarizing which of the two is a better investment. Include your reasons, using the course material evidence. Cite the financial statements and incorporate what you have learned in this course.
Calculate cash flows from operating, investing, and financing activities (direct method)
Compute the following cash flows for Express Service Company for the past year:
1. The beginning balance of Retained Earnings was $135,000, while the end of the year balance of Retained Earnings was $177,000. Net income for the year was $65,000. No dividends payable were on the balance sheet. How much was paid in cash dividends during the year?
2. The beginning and ending balances of the Common Stock account were $215,000 and $273,000, respectively. Where would the increase in Common Stock appear on the statement of cash flows?
3. The beginning and ending balances of the Treasury Stock account were $53,000 and $78,000, respectively. Where would the increase in Treasury Stock appear on the statement of cash flows?
4. The Property, Plant, & Equipment (net)increased by $12,000 during the year to have a balance of $152,000 at the end of the year. Depreciation for the year was $19,000.
Acquisitions of new plant assets during the year totaled $39,000. Plant assets were sold at a loss of $3,000.
a. What were the cash proceeds from the sale of plant assets?
b. What amount would be reported on the investing section
c. What amount, if any, would be reported on the operating section of the statement of cash flows?
Selected transaction data for the year ended March 31, 2010, include the following:
a. Net income, $77,000
b. Paid long-term note payable with cash, $59,600
c. Cash payments to employees, $43,000
d. Loss on sale of land, $9,600
e. Acquired equipment by issuing long-term note payable, $15,400
f. Cash payments to suppliers, $147,100
g. Cash paid for interest, $4,100
h. Depreciation expense on equipment, $13,900
j. Purchased long-term investment for cash, $3,200
k. Received cash for issuance of common stock, $2,200
I. Cash received from customers, $299,400
i. Paid short-term note payable by issuing common stock, $5,700 Paid cash dividends, $44,600
m. Cash paid for income taxes, $12,000
n. Sold land for cash, $51,900
o. Interest received (in cash), $1,000 P.
Requirements
1. Prepare the statement of cash flows for Barton Publication Company, Inc., for the year ended March 31, 2010, using the indirect method for operating cash flows. Include a schedule of noncash investing and financing activities. All of the current accounts except short-term notes payable result from operating transactions.
2. Also prepare a supplementary schedule of cash flows from operations using the direct method.
Barton Publication Company, Inc.
Balance Sheet
As of March 31, 2010 and 2009
|
|
2010
|
2009
|
Increase
(Decrease)
|
|
Current assets:
|
|
|
|
|
Cash..........................................................
|
$ 55,600
|
$ 14,700
|
$ 40,900
|
|
Accounts receivable..................................
|
51,400
|
53,300
|
(1,900)
|
|
Inventories.................................................
|
65,400
|
59,700
|
5,700
|
|
Prepaid expenses.......................................
|
3,700
|
5,100
|
(1,400)
|
|
Long-term investment.........................................
|
10,000
|
6,800
|
3,200
|
|
Equipment, net...................................................
|
71,700
|
70,200
|
1,500
|
|
Land...................................................................
|
35,500
|
97,000
|
(61,500)
|
|
Total assets.........................................................
|
293,300
|
$306,800
|
$(13,500)
|
|
Current liabilities:
|
|
|
|
|
Note payable, short-term...........................
|
$ 43,200
|
$ 48,900
|
$ (5,700)
|
|
Accounts payable......................................
|
4,300
|
3,500
|
800
|
|
Income tax payable...................................
|
13,700
|
15,500
|
(1,800)
|
|
Salary payable...........................................
|
9,200
|
12,400
|
(3,200)
|
|
Interest payable.........................................
|
8,200
|
7,400
|
800
|
|
Accrued liabilities.....................................
|
2,900
|
3,400
|
(500)
|
|
Long-term note payable.....................................
|
48,900
69,600
|
93,100
61,700
|
(44,200)
7,900
|
|
Common stock...................................................
Retained earnings ..............................................
Total liabilities and equity .................................
|
93,300
|
60,900
|
32,400
|
|
$293,300
|
$306,800
|
$(13,500)
|
|
|
Effect of decisions on ratios
Betsy Ross Flag Company's long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders' equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of those requirements, the company's lenders have the authority to take over management of the company.
Changes in consumer demand have made it hard for Ross to attract customers. Current lia-bilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross's management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management's intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term-a current asset. On the controller's recom-mendation, Ross's board of directors votes to reclassify long-term investments as short-term.
Requirements
1. What effect will reclassifying the investments have on the current ratio? Is Ross's true finan¬cial position stronger as a result of reclassifying the investments?
2. Shortly after the financial statements are released, sales improve and so, too, does the current ratio. As a result, Ross's management decides not to sell the investments it had reclassified as short-term. Accordingly, the company reclassifies the investments as long-term.
Has management behaved unethically? Give the reasoning underlying your answer.
2. Evaluate Inspired's cash flows for the year. Discuss each of the categories of cash flows in your response.
Prepare statements of cash flows (indirect and direct method) (Learning Objectives 1, 2, & 3) Barton Publication Company, Inc., has the following comparative balance sheet as of March 31, 2010.