Beruflich Dokumente
Kultur Dokumente
Noncurrent Assets
Investments (equity method) 3,097,000 3,000,000
Plant, property & equipment 16,420,000 10,800,000
Accumulated Depreciation (829,000) (600,000)
Intangible Assets 71,500 128,000
TOTAL ASSETS 24,847,600 18,205,000
Current Liabilities
Accounts Payable 880,000 750,000
Salaries Payable 20,000 15,000
Income Taxes Payable 13,400 27,000
Dividends Payable 35,000 60,000
Current portion long term debt 29,000 21,000
977,400 873,000
Noncurrent Liabilities
Bonds Payable 10,000,000 5,000,000
Discount on Bonds (247,000) (270,000)
Deferred Income Taxes 180,000 88,000
Other long term liabilities 562,000 3,000,000
10,495,000 7,818,000
Stockholder's Equity
Convertible preferred, $100 par 500,000 2,000,000
Common stock, $10 par 3,100,000 1,500,000
Additional paid in capital 3,950,000 1,200,000
Unrealized (gain)/loss investments 27,000 78,000
Retained Earnings 5,798,200 4,736,000
13,375,200 9,514,000
Total liabilities and equity 24,847,600 18,205,000
Wenatchee Whirlpool World
Income Statement
For year ending 12/31/96
Sales 6,200,000
Earnings of affiliated company (equity method) 115,000
Gain/(loss) on sale of PP&E (40,000)
Realized gain/(loss) on investments 108,000
Realized gain on sale of patent 950,000
Interest and dividend revenue 13,000
Total revenues 7,346,000
Additional information:
a. On February 25, WWW sold an internally developed patent for $1,000,000. The patent was carried on the
books at unamortized legal fees amounting to $50,000 at date of sale.
b. On March 31, WWW issued $5,000,000 in bonds at face value. The semi-annual bonds have a coupon rate
of 10% per annum.
c. During the year, WWW disposed of various items of equipment with a total book value of $65,000 and
original cost of $80,000. The amount received was $25,000 in cash.
d. During the third quarter, shareholders holding 15,000 shares of the preferred stock converted them into
common stock. The conversion ratio was 6 shares of common for each share of preferred.
e. On July 20, WWW sold 50,000 shares of its common stock for $41 per share.
f. By the end of the year, WWW had written off as uncollectible a total of $28,000 in accounts receivable.
g. An existing factory with equipment was acquired during the year. The acquisition cost was allocated as
follows: $772,000 to land, $3,450,000 to building and 678,000 to equipment.
h. WWW acquired a parcel of land adjoining the new factory by giving the owner 20,000 shares of its
common stock. At the date of the transaction, the market value of the stock was $40 per share.
i. During the year WWW purchased $875,000 in marketable securities and sold securities which had cost
$584,000. The market value of the portfolio at the end of the year was $390,000.
j. WWW owns 30% of a company which manufactures parts that WWW uses in its production process.
WWW received $18,000 in dividends from this partially owned company during 1996.
18,205,00 24,847,60
0 0
Accounts Payable (750,000) (880,000) (130,000)
Investing Activities
Financing Activities
Noncash Financing/Investing
h 800,000
Plant, property & equipment 10,800,000 g 4,900,000 c 80,000 16,420,000 5,620,000
Accumulated Depreciation (600,000) c 15,000 n 244,000 (829,000) (229,000)
n 6,500
Intangible Assets 128,000 a 50,000 71,500 (56,500)
18,205,000 24,847,600
Accounts Payable (750,000) p 130,000 (880,000) (130,000)
Salaries Payable (15,000) p 5,000 (20,000) (5,000)
Income Taxes Payable (27,000) q 13,600 (13,400) 13,600
Dividends Payable (60,000) k 75,000 k 50,000 (35,000) 25,000
Current portion long term debt (21,000) s 8,000 (29,000) (8,000)
Bonds Payable (5,000,000) b 5,000,000 (10,000,000) (5,000,000)
Premium/Discount on Bonds Payable 270,000 r 23,000 247,000 (23,000)
Deferred Income Taxes (88,000) q 92,000 (180,000) (92,000)
s 2,430,000
Other long term liabilities (3,000,000) s 8,000 (562,000) 2,438,000
12/31/95 ref Debit ref Credit 12/31/96 Target
Convertible preferred, $100 par (2,000,000) d 1,500,000 (500,000) 1,500,000
h 200,000
e 500,000
Common stock, $10 par (1,500,000) d 900,000 (3,100,000) (1,600,000)
h 600,000
e 1,550,000
Additional paid in capital (1,200,000) d 600,000 (3,950,000) (2,750,000)
Unrealized (gain)/loss investments (78,000) o 51,000 (27,000) 51,000
Retained Earnings (4,736,000) k 50,000 X 1,112,200 (5,798,200) (1,062,200)
0 (18,205,000) (24,847,600)
Reconciling schedule:
Net Income 1,112,200
Depreciation & amortization 250,500
Bond premiums/discounts 23,000
Realized gains/losses PP&E 40,000
Realized gain/loss investments (108,000)
Gain on sale of patent (950,000)
Undistributed Earnings of Investees (97,000)
Deferred income taxes 92,000
Change in working capital accounts:
Net accounts receivable 158,500
Merchandise Inventory (270,000)
Prepaid Operating Expenses (22,000)
Accounts Payable 130,000
Salaries Payable 5,000
Income Taxes Payable (13,600)
Cash provided by operations: 350,600
Financing Activities
Issued bonds b 5,000,000
Issued common stock e 2,050,000
Dividends paid k 75,000
Long-term debt repaid s 2,430,000
Noncash Financing/Investing
Preferred converted to common stock d 1,500,000 d 1,500,000
Swap common stock for land h 800,000 h 800,000
l. No deposit was made for share of earnings of partially owned companies. Therefore, this
account needs to be zeroed out by re-constructing the entry that recorded the share of
earnings.
m. No check was written for bad debt expense. Therefore, this account needs to be zeroed out by
re-constructing the entry that recorded bad debt expense for the year (the credit is always to
allowance for doubtful accounts.
Starting through the balance sheet to investigate accounts not yet balanced:
o. Securities available for sale (at market) doesnt balance by $51,000. However, this amount
appears in the owners equity section as the change in Unrealized (gain)/loss on investments.
Therefore, this amount must have been the adjusting entry for the allowance for change in
value account.
p. The remaining difference in accounts receivable ($120,000) is the adjustment to sales to get
from accrual basis to cash basis. The difference in Merchandise Inventory is an adjustment to
cost of goods sold. The difference in prepaid operating expenses is an adjustment to other
operating expenses. The change in accounts payable would mostly be related to cost of goods
sold. The change in salaries payable affects salaries and wages expense.
Sales 120,000
Accounts receivable 120,000
Merchandise inventory 270,000
Cost of goods sold 270,000
Prepaid operating expenses 22,000
Other operating expenses 22,000
Accounts payable 130,000
Cost of goods sold 130,000
Salaries payable 5,000
Salaries and wages 5,000
q. Income tax expense is affected by two accounts on the balance sheet - income taxes payable
and deferred income taxes.
s. Long-term debt is presented in two numbers on balance sheet - current and noncurrent. These
accounts need to be combined to find out how much was borrowed or repaid during the year.
Take the change in one account to the other. The remaining amount to balance will be the
cash inflow or outflow.
After this entry, the number necessary to balance other long-term debt is $2,430,000 which must
be the amount of long-term debt repaid during the year.
If all balance sheet accounts have been explained (check it!), you are ready to complete the cash
flows from operations by adjusting the revenue/expense accounts for the amounts entered into the
income statement section. Then total up the investing activities and the operating activities. The
cash flows from operating plus/minus the cash flows from investing and operating should TIE TO
THE CHANGE IN CASH. If so, you are ready for the last step the indirect method
reconciliation schedule.
The reconciliation schedule. Start with Net Income and adjust for all the zerod out items in
the income statement section EXCEPT for bad debt expense. In other words, add back
deprecation expense, adjust for gain/loss, etc. The skip down a few rows and start the changes in
working capital section and enter the OPPOSITE SIGN as compared to the balance sheet section
(the SAME SIGN as the entry in the income statement section). Youll probably still be off so
check through the direct method (income statement) section and look for amounts that are not yet
on the reconciling schedule and trace them back to the entry. For example, you might find a
change in bond premium or discount on the interest expense line. Getting it to balance isnt a
picnic but it can be done!
Once the workpaper is complete, you are ready to prepare the formal statement of cash flow
with headings, appropriate descriptions, and disclosures of noncash financing and investing
activities.
** This is the easiest way to handle bad debts: just enter change in NET
A/R:
Change in Accounts 148,000
Receivable
Change in Allowance for Doubtful 10,500
Accounts
158,500
This is the more difficult
alternate:
Adjustment to sales (to get cash collected from 120,000
customers)
Bad debt expense 38,500
158,500
What does not work is to include bad debt expense +
change in Accounts Receivable and change in Allowance!