Question

Accounting 103 – Team Take Out Question for Exam #1               50 Point Value

The Balance Sheet of Broadway Mufflers, presented below

as of December 31, 2016, was prepared by their new CFO:

ASSETS

Cash . . . . . . . . . . . . . . . . . . $ 497,620

Supplies . . . . . . . . . . . . . . . .     3,450

Inventory. . . . . . . . . . . . . . . .    27,880

Patents. . . . . . . . . . . . . . . . . ­   18,500

Land . . . . . . . . . . . . . . . . . .   250,000

Accounts Receivable. . . . . . . . . . .    77,035

Building . . . . . . . . . . . . . . . .   805,000

Equipment. . . . . . . . . . . . . . . .   303,900

Accumulated Depreciation-Building. . . . (102,450)

Accumulated Depreciation-Equipment . . . ( 52,300)

                                        $1,828,635

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts Payable. . . . . . . . . . . .    $42,620

Accrued Liabilities . . . . . . . . . .      5,315

Salaries and Wages Payable. . . . . . .      6,800

Notes Payable (due in 2 years). . . . .    400,000

Common Stock. . . . . . . . . . . . . .    700,000

Retained Earnings . . . . . . . . . . .    673,900

                                       $1,828.635

Their new CFO also provided additional Information pertaining to the 2017 year as follows:

Accounts Receivable increased by $20,750.

Supplies increased by $2,145

Inventory decreased by 3,490

Accounts Payable decreased by $2,170

Accrued liabilities increased by $1,265

Salaries and Wages Payable decreased by $5,000

Equipment with a cost of $45,000 and having accumulated depreciation of $44,200 was sold for $8,000. No equipment was purchased in 2017

An additional long-term loan was taken out in the amount of 90,000 due in 3 years

Land was purchased for $100,000 cash; plans are to hold it for a future expansion

Cash dividends were declared and paid on December 30^th totaling $12,000

Sales Revenue amounted to $842,685

Selling Expense totaled $87,450

Administrative Expense was $108,960

Cost of Goods Sold amounted to $404,850

Depreciation expense on the building was $32,200

Depreciation expense on equipment was $30,390

Patent amortization was $3,000

Required:

1. Prepare a Statement of Cash Flows for the Year Ended December 31, 2017,

2. Prepare a classified Balance Sheet as of December 31, 2017.

3. Prepare a multiple step income statement for the year ending December 31, 2017.

    Income Tax rate is 25%.

Answer 1

Broadway Mufflers
Income Statement
For the Year Ended December 31, 2017
Sales Revenue		$842,685
Cost of merchandise sold		$404,850
Gross Profit		$437,835
Expenses
Selling Expenses	$87,450
Administrative Expenses	$108,960
Depreciation Expenses - Building	$32,200
Depreciation Expenses - Equipment	$30,390
Amortization expenses	$3,000
Total operating expenses		$262,000
Income from operations		$175,835
Other Income and Expenses
Gain on sale of equipment		$7,200
Income before Income tax		$183,035
Less: Tax (25%)		$45,759
Net Income/(loss)		$137,276
Broadway Mufflers
Shareholder's Equity Statement
For the Month Ended December 31, 2017
Retained Earnings		$673,900
Net Income/(loss) for the year	$137,276
Less: Dividend Paid	$12,000
Increase in retained earnings		$125,276
Retained Earnings		$799,176
Broadway Mufflers
Balance Sheet
December 31, 2017
Assets
Current Assets
Cash		$653,976
Accounts receivable		$97,785
Supplies		$5,595
Inventory		$24,390
Total current assets			$781,746
Property, plant, and equipment
Land		$350,000
Equipment	$258,900
Less: Acc. Dep. - Equipment	$38,490	$220,410
Building	$805,000
Less: Acc. Dep. - Equipment	$134,650	$670,350
Total Property, plant, and equipment			$1,240,760
Intangible Assets
Patents			$15,500
Total Assets			$2,038,006
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable		$40,450
Accrued Liabilities		$6,580
Salaries & wages Payable		$1,800
Total Current Liabilities		$48,830
Long-Term Liabilities
Notes Payable		$490,000
Total Liabilities			$538,830
Shareholder's Equity
Common Stock		$700,000
Retained Earnings		$799,176
Total Shareholder's Equity			$1,499,176
Total Liabilities and Shareholders' Equity			$2,038,006
Broadway Mufflers
Statement of Cash Flows
For the year ended December 31, 2017
Cash flows from operating activities:
Net income	$137,276
Adjustments to reconcile net loss to net cash flow from operating activities:
Depreciation & Amortization expenses	$65,590
Gain on sale of equipment	-$7,200
Changes in current operating assets and liabilities:
Increase in accounts receivable	-$20,750
Increase in supplies	-$2,145
Decrease in inventory	$3,490
Decrease in accounts payable	-$2,170
Increase in accrued liabilities	$1,265
Decrease in salaries & wages payable	-$5,000
Net cash provided by operating activities	$170,356
Cash flows from investing activities
Proceeds from the sale of Equipment	$8,000
Purchase of Land	-$100,000
Net cash used by investing activities	-$92,000
Cash flows from financing activities
Dividend Paid	-$12,000
Proceed from notes payable	$90,000
Net cash provided by financing activities	$78,000
Net Increase in cash	$156,356
Cash at Beginning of Period	$497,620
Cash at End of Period	$653,976