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Problem Set 6 BS CS 6

Treece, Inc. reported $223,000 in net income for the year ended December 31, 2011. Its major revenue sources were net sales of $2,850,000 and dividend income of $104,000. Operating expenses totaled $980,000 and included $115,000 of depreciation expense. Accounts receivable decreased by $70,000 while inventories increased by $35,000. Accrued expenses also changed.

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238 views3 pages

Problem Set 6 BS CS 6

Treece, Inc. reported $223,000 in net income for the year ended December 31, 2011. Its major revenue sources were net sales of $2,850,000 and dividend income of $104,000. Operating expenses totaled $980,000 and included $115,000 of depreciation expense. Accounts receivable decreased by $70,000 while inventories increased by $35,000. Accrued expenses also changed.

Uploaded by

Rubab Mirza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Q1 The following income statement and selected balance sheet account data are available for Treece,

Inc., at December 31, 2011:


TREECE, INC.
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,850,000
Dividend income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ….. 104,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 70,000
Gain on sales of marketable securities . . . . . . . . . . . . . . .. . ….. 4,000
Total revenue and gains. . . . . . . . . . . . . . . . . . . . . . . . . . .. . $3,028,000
Costs and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... $1,550,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 980,000
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 185,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 90,000
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,805,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 223,000

End of Beginning of
Year Year

Selected account balances:


Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 650,000 $ 720,000
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9,000 6,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 800,000 765,000
Short-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 15,000
Accounts payable (merchandise suppliers) . . . . . . . . . . . . . . .. 570,000 562,000
Accrued operating expenses payable . . . . . . . . . . . . . . . . . .... 65,000 94,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000 12,000
Accrued income taxes payable. . . . . . . . . . . . . . . . . . . . . . . .... 22,000 35,000

Additional Information
1. Dividend revenue is recognized on the cash basis. All other income statement amounts are recognized
on the accrual basis.
2. Operating expenses include depreciation expense of $115,000.
Instructions
a. Prepare a partial statement of cash flows, including only the operating activities section of the
statement and using the indirect method. Place brackets around numbers representing cash payments.

Q2 You are the controller for 21st Century Technologies. Your staff has prepared an income
statement for the current year and has developed the following additional information by analyzing
changes in the company’s balance sheet accounts.
21st CENTURY TECHNOLOGIES
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2011
Revenue:
Net sales $3,200,000
Interest revenue 40,000
Gain on sales of marketable securities 34,000
Total revenue and gains $3,274,000
Costs and expenses:
Cost of goods sold $1,620,000
Operating expenses (including depreciation of $150,000) 1,240,000
Interest expense 42,000
Income tax expense 100,000
Loss on sales of plant assets 12,000
Total costs, expenses, and losses 3,014,000
Net income $ 260,000

Additional Information:
1. Accounts receivable increased by $60,000.
2. Accrued interest receivable decreased by $2,000.
3. Inventory decreased by $60,000, and accounts payable to suppliers of merchandise decreased by
$16,000.
4. Short-term prepayments of operating expenses increased by $6,000, and accrued liabilities for
operating expenses decreased by $8,000.
5. The liability for accrued interest payable increased by $4,000 during the year.
6. The liability for accrued income taxes payable decreased by $14,000 during the year.
7. The following schedule summarizes the total debit and credit entries during the year in other
balance sheet accounts:
Debit Entries Credit Entries

Marketable Securities $ 60,000 $ 38,000


Notes Receivable (cash loans made to borrowers) 44,000 28,000
Plant Assets (see paragraph 8) 500,000 36,000
Notes Payable (short-term borrowing) 92,000 82,000
Capital Stock 20,000
Additional Paid-in Capital—Capital Stock 160,000
Retained Earnings (see paragraph 9) 120,000 260,000
8. The $36,000 in credit entries to the Plant Assets account is net of any debits to Accumulated
Depreciation when plant assets were retired. Thus, the $36,000 in credit entries represents the
book value of all plant assets sold or retired during the year.
9. The $120,000 debit to Retained Earnings represents dividends declared and paid during the year.
The $260,000 credit entry represents the net income shown in the income statement.
10. All investing and financing activities were cash transactions.
11. Cash and cash equivalents amounted to $244,000 at the beginning of the year and to $164,000 at
year-end.

Required
i) Prepare a Statement including Operating (Indirect method) Investing and Financing
activities (14)
ii) Show the relevant computations
1. Proceed from the sale of Marketable Securities (2)
2. Proceed from the sale of Plant assets (2)
3. Proceed from issuing capital stock (2)

Q3. An analysis of the income statement and the balance sheet accounts of Schmatah Fashions at
December 31, 2011 provides the following information
Income statement items:
Gain on Sales of Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . $ 15,000
Loss on Sales of Plant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Analysis of balance sheet accounts:


Marketable Securities account:
Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 74,000

Notes Receivable account:


Debit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000
Credit entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 50,000

Plant and Equipment accounts:


Debit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 220,000
Credit entries to plant asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 150,000
Debit entries to accumulated depreciation accounts . . . . . . . . . . . . . . . . . ... 60,000

Additional Information
1. Except as noted in 4, payments and proceeds relating to investing transactions were made in cash.
2. The marketable securities are not cash equivalents.
3. All notes receivable relates to cash loans made to borrowers, not to receivables from customers.
4. Purchases of new equipment during the year ($220,000) were financed by paying $70,000 in cash
and issuing a long-term note payable for $150,000.
5. Debits to the accumulated depreciation accounts are made whenever depreciable plant assets are
retired. Thus, the book value of plant assets retired during the year was $90,000 ($150,000
$60,000).

Instructions

Prepare the investing activities section of a statement of cash flows. Show supporting computations for
the amounts of (1) proceeds from sales and marketable securities and (2) proceeds from sales from plant
assets. Place brackets around numbers representing cash outflows

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