Accounting Paper 3

Only available on StudyMode
  • Download(s) : 130
  • Published : November 28, 2011
Open Document
Text Preview
Ex. 118
A comparative balance sheet for Joseph Corporation is presented below:

Comparative Balance Sheet
2002 2001
Cash$ 51,000$ 31,000
Accounts receivable (net)75,00060,000
Prepaid insurance22,00017,000
Accumulated depreciation (20,000) (13,000)
Total Assets$220,000$195,000

Liabilities and Stockholders' Equity
Accounts payable$ 13,000$ 6,000
Bonds payable30,00019,000
Common stock140,000115,000
Retained earnings 37,000 55,000
Total liabilities and stockholders' equity$220,000$195,000

Additional information:
1.Net loss for 2002 is $14,000.
2.Cash dividends of $4,000 were declared and paid in 2002.
3.Land was sold for cash at a loss of $5,000. This was the only land transaction during the year. 4.Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash. 5.$14,000 of bonds were retired during the year at carrying (book) value. 6.Equipment was acquired for common stock. The fair market value of the stock at the time of the exchange was $25,000.

Prepare a statement of cash flows for the year ended 2002, using the indirect method.

Solution 118(22-27 min.)

Statement of Cash Flows
For the Year Ended December 31, 2002
——————————————————————————————————————————— Cash flows from operating activities
Net loss $(14,000)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation (a) $17,000
Loss on sale of land (b) 5,000
Increase in accounts receivable (15,000)
Increase in prepaid insurance (5,000)
Increase in accounts payable 7,000 9,000
Net cash used by operating activities (5,000)
Cash flows from investing activities
Proceeds from the sale of land (b) 13,000
Proceeds from the sale of equipment 5,000
Net cash provided by investing activities 18,000
Cash flows from financing activities
Retirement of bonds payable (14,000)
Issuance of bonds payable 25,000
Payment of dividends (4,000)
Net cash provided by financing activities 7,000
Increase in cash 20,000
Cash at beginning of period 31,000
Cash at end of period $51,000

Noncash investing and financing activities
Purchase of equipment through issuance of common stock $25,000

(a)Accumulated Depreciation 12/31/0113,000
Accumulated Depreciation 12/31/0220,000
Difference 7,000
Add: Accumulated depreciation on equipment sold10,000
Depreciation expense 17,000

(b)Cost of land sold18,000
Less: Loss on sale of land (5,000)
Proceeds from sale of land13,000

Ex. 124

Boyle Corporation had the following comparative current assets and current liabilities:
Dec. 31, 2002Dec. 31, 2001
Current assets
Cash$ 60,000$ 30,000
Marketable securities40,00010,000
Accounts receivable55,00095,000
Prepaid expenses 35,000 20,000
Total current assets$300,000$245,000
Current liabilities
Accounts payable$140,000$110,000
Salaries payable40,00030,000
Income tax payable 20,000 15,000
Total current liabilities$200,000$155,000

During 2002, credit sales and cost of goods sold were $750,000 and $400,000, respectively.

Compute the following liquidity measures for 2002:
1.Current ratio.
2.Working capital.
3.Acid-test ratio.
4.Receivables turnover.
5.Inventory turnover.

Solution 124(10–15 min.)

1.Current Ratio=Current Assets ÷ Current Liabilities
=$300,000 ÷ $200,000
=1.5 : 1

2.Working Capital=$300,000 – $200,000

Cash + Marketable Securities + Accounts Receivable
3. Acid-test Ratio=————————————————————————
Current Liabilities
$60,000 + $40,000 + $55,000
tracking img