Problem 21-5 Statement of cash flows; direct method [LO21-3, 21-8]

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.

Additional information from the accounting records:

Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.

During 2018, equipment with a cost of $210,000 (90% depreciated) was sold.

The statement of shareholders' equity reveals reductions of $160,000 and $435,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows of Metagrobolize for the year ended December 31, 2018. Present cash flows from operating activities by the direct method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.)

METAGROBOLIZE INDUSTRIES

Statement of Cash Flows

For year ended December 31, 2018

($ in 000s)

Cash inflows:

Cash outflows:

Noncash investing

and financing activities:

Windsor Company was incorporated on January 2, 2018, but was unable to begin manufacturing activities until July 1, 2018, because new factory facilities were not completed until that date.

The Land and Buildings account reported the following items during 2018.

January 31 Land and building $165,900

February 28 Cost of removal of building 9,973

May 1 Partial payment of new construction 63,430

May 1 Legal fees paid 4,630

June 1 Second payment on new construction 48,600

June 1 Insurance premium 2,280

June 1 Special tax assessment 4,310

June 30 General expenses 36,249

July 1 Final payment on new construction 30,570

December 31 Asset write-up 56,497

Total 422,439

December 31 Depreciation-2018 at 1% (3,613 )

December 31, 2018 Account balance $418,826

The following additional information is to be considered.

1. To acquire land and building, the company paid $85,900 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $106 per share.

2. Cost of removal of old buildings amounted to $9,973, and the demolition company retained all materials of the building. 3. Legal fees covered the following.

Cost of organization $710

Examination of title covering purchase of land 1,450

Legal work in connection with construction contract 2,470

Total $4,630

4. Insurance premium covered the building for a 2-year term beginning May 1, 2018.

5. The special tax assessment covered street improvements that are permanent in nature.

6. General expenses covered the following for the period from January 2, 2018, to June 30, 2018.

President’s salary $32,162

Plant superintendent’s salary-supervision of new building 4,087 $36,249

7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $56,497, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.

8. Estimated life of building-50 years. Depreciation for 2018-1% of asset value (1% of $361,300, or $3,613).

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  

   2019:  $  

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.

   -Select-IIIIIIIVVItem 4

The BouchonCompany started its operations many years ago.  The balance sheet for December 31, 2017, showed the following account balances, in dollars (there were no other accounts listed):

Cash 827; Paid in capital 1,000; Loan from bank (0% interest) 800; Dividend payable 100; Accumulated depreciation 250; Inventory 300; Retained earnings 334; Accounts receivable 400; PP&E 1,500; Accounts payable 250; Wages payable 103; Rent payable 30; Advances from customers 160;

During 2018the following transactions occurred:

1. Bouchon took another 0% interest loan from the bank, on January 1, 2018, in the amount of $600.
2. Purchases of inventory were $654 (all on credit), and payments to suppliers were $704.
3. A dividend in the amount of $168 was declared during 2018. On December 31, 2018, the Dividend payable account balance was $18.
4. The employees of Bouchon were paid $154, which was $8 more than what they earned during the year.
5. a. Total sales during 2018 were $1,435. Part of the sales relate to advances received during 2017. As of December 31, 2018, Bouchon has no more obligations related to advances from customers. Cash sales were $750, and credit sales were $525.

b. All current and past customers have paid their accounts in full by the end of the year.  

6. Cost of Goods Sold exceeded purchases of inventory by $6.
7. Depreciation expense was $225.
8. The owner of Bouchon decided to take a second job, flipping burgers at the local McDonalds, for $60 a month, in order to cover their daughter’s tuition at an Ivy League University.  
9. Rent expense for the year was $180; rent payments were $256 (all to the same landlord and for the office space to which the Rent payable balance on December 31^st, 2017 relates).
10. A fully depreciated machine, with an original cost of $210 and a salvage value of zero, was sold for $100, in cash.  

Required:

1. Record all the transactions that occurred during 2018 (you may use the accounting equation method or journal entries).
2. Prepare an income statement for the year ended December 31, 2018.
3. Prepare a balance sheet for December 31, 2018.
4. Prepare a statement of cash flows for the year ended December 31, 2018 using the indirect metho

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2017, by issuing 11,200 shares of $10 par value common stock. Haynes’s shares had a $15 per share fair value. On that date, Turner reported a net book value of $120,200. However, its equipment (with a five-year remaining life) was undervalued by $8,700 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $39,100, although no value had been recorded on Turner’s books. The customer list had an estimated remaining useful life of 10 years.The following balances come from the individual accounting records of these two companies as of December 31, 2017:HaynesTurnerRevenues$(638,000)$(351,000)Expenses465,000191,000Investment incomeNot given0Dividends declared90,00080,000The following balances come from the individual accounting records of these two companies as of December 31, 2018:HaynesTurnerRevenues$(776,000)$(407,500)Expenses486,500222,900Investment incomeNot given0Dividends declared110,00060,000Equipment510,000311,000 What balance does Haynes’s Investment in Turner account show on December 31, 2018, when the equity method is applied?b. What is the consolidated net income for the year ending December 31, 2018?c-1. What is the consolidated equipment balance as of December 31, 2018?c-2. Would this answer be affected by the investment method applied by the parent?d. Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2018 by using initial value, partial equity and equity method.What balance does Haynes’s Investment in Turner account show on December 31, 2018, when the equity method is applied?b. What is the consolidated net income for the year ending December 31, 2018?c-1. What is the consolidated equipment balance as of December 31, 2018?c-2. Would this answer be affected by the investment method applied by the parent?a.Investment in Turner accountb.Consolidated net incomec-1.Consolidated equipmentc-2.Would this answer be affected by the investment method applied by the parent?Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2018 by using initial value, partial equity and equity method. (If no entry is required for a transaction/event,

select "No journal entry required" in the first account field.)

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $   

   2019:  $   

2. What was the 2019 free cash flow?

   $   

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.

   -Select-IIIIIIIVVItem 4

question 7 chapter 3

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  

   2019:  $  

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.

Fraser Corp. is a traditional retailer that recently also started an Internet-based subsidiary that sells its product online. Its sales in June 2018 were $700,000. Fraser, the company president, is preparing for a meeting with Tom Scott, a loan officer with Anchor Bank, to review quarter end financing requirements. After discussions with the company’s marketing and finance managers, sales over the next three months were forecasted as follows. Sales in July 2018: $1,250,000, sales in August 2018: $2,250,000 and sales in September 2018: $2,500,000.

Fraser’s balance sheet as of the end of June, 2018 was as follows.

____________________________________________________________________

Fraser Corporation                                                             

Balance Sheet as of June 30, 2018 (in $ Thousands)

____________________________________________________________________

Cash                              $ 50                               Accounts payable         $   10                         

Accounts receivable         710                               Notes payable                  800

Inventories                       600                               Long-term debt                400

Net fixed assets               750                                  Total liabilities          1,210

                                                                                       Equity                           900

          Total assets          $2,110                                       Total                   $2,110

     ____________________________________________________________________

All sales are made on credit terms of net 30 days and are collected the following month and no bad debts are anticipated. The accounts receivable on the balance sheet at the end of June thus will be collected in July. The July sales will be collected in August, and so on The amount of Inventory on hand represents the operating level which the company intends to maintain (i.e., not percentage of sales). Cost of goods sold average 70 percent of sales. Inventory is purchased in the month of sale and paid for in cash. Other cash expenses average 7 percent of sales. Assume taxes are paid monthly and the effective income tax rate is 40 percent for planning purposes. Fraser is planning to purchase a small warehouse in September 2018 for $100,000. Depreciation is $10,000 per month including depreciation expenses for the warehouse.

      The annual interest rate on outstanding long term debt and notes payable is 12% per annum. There are no capital expenditures planned during the period, and no dividends will be paid. The company’s desired end-of-month cash balance is $90,000. The president hopes to meet any cash shortages during the period by borrowing (short term) from the bank at the end of the month. The interest rate on the new bank loans will be 12% per annum. All interest expenses are based on previous month’s debt.

Prepare monthly pro forma cash budgets for July, August, and September 2018. (6 marks).

Prepare monthly pro forma income statements for July, August, and September 2018.

Prepare monthly pro forma balance sheets at the end of July, August, and September 2018. .

Fraser Corp. is a traditional retailer that recently also started an Internet-based subsidiary that sells its product online. Its sales in June 2018 were $710,000. Fraser, the company president, is preparing for a meeting with Tom Scott, a loan officer with Anchor Bank, to review quarter end financing requirements. After discussions with the company’s marketing and finance managers, sales over the next three months were forecasted as follows. Sales in July 2018: $1,250,000, sales in August 2018: $2,250,000 and sales in September 2018: $2,500,000.

Fraser’s balance sheet as of the end of June, 2018 was as follows.

____________________________________________________________________

Fraser Corporation                                                              

Balance Sheet as of June 30, 2018 (in $ Thousands)

____________________________________________________________________

Cash                              $ 50                               Accounts payable         $   10                          

Accounts receivable         710                               Notes payable                  800

Inventories                       600                               Long-term debt               400

Net fixed assets               750                                  Total liabilities          1,210

                                                                                       Equity                           900

          Total assets          $2,110                                       Total                  $2,110

     ____________________________________________________________________

All sales are made on credit terms of net 30 days and are collected the following month and no bad debts are anticipated. The accounts receivable on the balance sheet at the end of June thus will be collected in July. The July sales will be collected in August, and so on The amount of Inventory on hand represents the operating level which the company intends to maintain (i.e., not percentage of sales). Cost of goods sold average 70 percent of sales. Inventory is purchased in the month of sale and paid for in cash. Other cash expenses average 7 percent of sales. Assume taxes are paid monthly and the effective income tax rate is 40 percent for planning purposes. Fraser is planning to purchase a small warehouse in September 2018 for $100,000. Depreciation is $10,000 per month including depreciation expenses for the warehouse.

      The annual interest rate on outstanding long term debt and notes payable is 12% per annum. There are no capital expenditures planned during the period, and no dividends will be paid. The company’s desired end-of-month cash balance is $90,000. The president hopes to meet any cash shortages during the period by borrowing (short term) from the bank at the end of the month. The interest rate on the new bank loans will be 12% per annum. All interest expenses are based on previous month’s debt.

Prepare monthly pro forma cash budgets for July, August, and September 2018.

                                                                                                                                        .

Prepare monthly pro forma income statements for July, August, and September 2018.                                                                                                                                        

                                                                                                                                        .

Prepare monthly pro forma balance sheets at the end of July, August, and September 2018.                                                                                                                

                                                                                                                                         .

The following transactions occurred during 2018 for the Beehive Honey Corporation:

Required:
1. Record each transaction in general journal form.
2. Prepare any necessary adjusting entries at the year-end on December 31, 2018. No adjusting entries were recorded during the year for any item.

Record each transaction in general journal form. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Borrowed $31,000 from a bank and signed a note. Principal and interest at 12% will be paid on January 31, 2019.

• Paid $7,400 to an insurance company for a two-year fire insurance policy.

• Purchased supplies costing $4,700 on account. The company records supplies purchased in an asset account. At the December 31, 2018, year-end, supplies costing $2,200 remained on hand.

• A customer borrowed $7,500 and signed a note requiring the customer to pay principal and 10% interest on April 30, 2019.

Prepare any necessary adjusting entries at the December 31, 2018, year-end. No adjusting entries were recorded during the year for any item. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Borrowed $31,000 from a bank and signed a note. Principal and interest at 12% will be paid on January 31, 2019.

• Paid $7,400 to an insurance company for a two-year fire insurance policy.
• On July 17, supplies were purchase for $4,700 and recorded in an asset account. At December 31, year-end, supplies costing $2,200 remained on hand.
• A customer borrowed $7,500 and signed a note requiring the customer to pay principal and 10% interest on April 30, 2019.