accounting cash flow case

This case has been divided into two parts. We already did the first part, which requires you to do balance sheet, income statement and stockholder’s equity. For the second part, you are required to do the cash flow statement according to the balance sheet, income statement and stockholder’s equity i give you (which are all correct answers). Apart from that, you might need to read the case for some support.

 

i give you the original case which you may want to read for support, the excel doc helping you do the dr/cr and the correct answer to the balance sheet, income statement and stockholder’s equity. 

  

THE RENEWED LIFE CENTER INC.

The Renewed Life Center Inc. (RLC) is a for profit rehabilitation clinic located in Sparks, Nevada. In the past the clinic has maintained its records primarily on a cash basis although it has included adjustments for accounts payable at each month end date. In 2011, the State oversight agency has demanded financial statements on an accrual basis in accordance with United States generally accepted accounting principles. You have been asked to prepare these financial statements which will include comparative balance sheets at June 30, 2010 and 2011, an income statement, statement of stockholders’ equity and a statement of cash flows for the year ended June 30, 2011. These financial statements are not internal financial statements. They are external reports and should be appropriately summarized.

The attached trial balances have been prepared by RLC’s bookkeeper from the computerized accounting records. These trial balances are the post closing trial balance from the prior year and the trial balance for the current year. Based on your inquiries and review of this trial balance you note a number of deficiencies and amendments that will be necessary to prepare the required financial statements. These are summarized as follows:

Cash in the banks is correct at each balance sheet date and has been reconciled to the bank statements.

The investments are available for sale securities and not considered cash equivalents for the purpose of the statement of cash flows. Fair value of the securities owned at June 30, 2011 and 2010 was $34,000 and $138,000 respectively. Original cost of the securities was as shown on the trial balance. During the year, $100,000 was received through the sale of securities to pay for the building. The cost of the securities sold was $116,825 and a loss of $16,825 has been recorded. No securities were purchased in the year.

RLC has not accounted for accounts receivable. Sales are recorded when cash is collected from clients and insurance companies. Amounts due from clients and insurance companies at June 30, 2011 and 2010 respectively have been determined to be:

2011 2010

Clients 30,419.00 28,271.00

Insurance companies 19,888.00 4,745.80

All accounts receivable due from insurance companies are considered collectible. Based on past experience and the nature of the clientele, only 50% of balance due from clients is expected to be collected at each balance sheet date.

Inventory of drug supplies on hand is immaterial.

Liability insurance is paid in January each year for the calendar year to December 31. The amount in the 2011 expense account represents the January 2011 payment. The equivalent 2010 payment was $12,220.00. Property taxes were paid to June 30, 2011 for the current year on the new property acquired and were booked to expense.

Accounts payable are correct at each balance sheet date and all relate to operating expenses.

The accrued payroll balances are correct except for the fact that accrued vacation pay has not been recognized. Accrued vacation pay of $3,000 and $1,478 existed at June 30, 2011 and 2010 respectively.

The income taxes paid represent the payment of the June 30, 2010 tax liability. Assume that this liability was correctly computed and ignore issues relating to deferred tax for now. The 2011 liability/asset is to be based on the federal tax rate of 30% of profit/loss for the year.

An issue of 10,000 shares was made to an investor at a price of $4.40 a share on January 2 2011.

Property plant and equipment and the related liabilities are messed up. Depreciation has never been booked and the new building and related loans have not been accounted for correctly. A depreciation schedule through to June 30, 2010 has been provided for your use.

In July 2010 RLC purchased land and buildings for a total amount of $530,000. The purchase was 100% financed through with two mortgages offered by the vendor; a first mortgage of $480,000 and a second mortgage of $50,000. Based on property tax valuations, the land portion of the acquisition was assessed to be $130,000 with the balance relating to the buildings. In the period from July through December 31, 2010, RLC continued to operate from its former leasehold premises while the new clinic was being refurbished. The cost of the building refurbishment was included in Construction Costs – new building. All of these should be capitalized. The building was finally completed in December 2010 and RLC terminated its lease and commenced operations from the new building.

The mortgages call for equal quarterly payments due on March 31, June 30, September 30 and December 31 each year. These payments include interest at 5% per year on the first mortgage and 7% per year on the second mortgage. The mortgages were taken out on July 1, 2010 and four payments of $10,500 have been made on the first mortgage and four payments of $2,500 have been made on the second mortgage on time. These payments will continue for another 9 years (10 years from the start) at which time (July 1, 2020) the remaining mortgage principal will be fully repayable.

Additions to equipment in 2011 were $25,726. Useful life for all equipment and the software system is an estimated five year life with no residual value. The building is estimated to have a forty year life with no residual value… A half year’s depreciation is taken in the year of acquisition and disposal. No fixed assets have been sold.

The leasehold improvements reverted to the lessor at the termination of the lease in December 2011. 80% of the improvements should have been amortized at June 30, 2010 based on the five year lease term and the balance should be written off in the current year. In addition because of a dispute with the lessor concerning damage to the leased premises, the rent deposit which was thought to be recoverable at June 30, 2010 proved to be irrecoverable in 2011 and should be written off in 2011.

TO DO THIS EXERCISE

1. Correct the opening trial balance to determine the figures needed for the opening balance sheet.

2. Enter the correcting entries for the prior year items in the current year trial balance. (These will be in the nature of prior period adjustments).

3. Correct the closing trial balance with the required current period adjustments.

4. Prepare the financial statements.

This exercise must be done using your excel skills. It is not a manual exercise.

2011

116,545.71

530,000.00

20,675.00

64,260.54

14,313.25

28,612.80

570.52

2,662.85

(28,464.69)

ued payroll

(8,376.84)

(1,960.41)

(1,800.76)

(50,000.00)

(480,000.00)

(50,000.00) (50,000.00)

(90,000.00)

(196,351.12)

(1,076.78)

(720,127.63)

(56,970.76)

(58,474.57)

(183.00)

(446.00)

1,452.00

40,037.66

4,370.00

747.95

37,404.00

12,254.40

29,650.82

23,882.38

1,600.00

442,719.67

36,849.50

29,941.63

7,002.49

4,559.67

7,264.09

8,255.58

28,450.00

1,751.50

3,900.00

789.11

9,876.44

893.76

3,375.00

806.95

2,166.60

4,185.00

13,491.92

1,829.42

10,029.13

412.91

561.39

8,803.43

5,181.63

2,507.77

2,601.68

2,964.49

3,153.08

2,324.76

16,825.00

93,931.89

10,000.00

42,000.00

400.00

1,138.60

(17.08)

4,265.67

0.00 – 0 – 0 0.00

																																																																																																																																																																																																																																																																																																																																																																																																																																																													TRIAL BALANCE
6/30/11
	Adjustments
	Trial balance	Dr	Cr		Adjusted
	1020		Wells Fargo Checking		116,545.71
1550	Building		530,00			0.00
	1570			Software system					20,675.00
	1580			Equipment			64,260.54
	1590			Leasehold improvements		14,313.25
	1700		Employers Insurance Inc stock at cost		28,612.80
1800	Deposits – other		570.52
	1802		Rent deposit				2,662.85
	2000		Accounts payable		(28,464.69)
	2100	Ac	cr		(8,376.84)
	2103		Federal payroll taxes payable		(1,960.41)
	2104		NV Unemployment		(1,800.76)
2410	Building mortgage – second				(50,000.00)
2400	Building mortgage – primary		(480,000.00)
	3000		Common stock $1 par
	3001		Additional paid in capital		(90,000.00)
	3010		Retained earnings				(196,351.12)
									– 0
4100	Dividends earned		(1,076.78)
4200	Fees for treatment- other		(720,127.63)
4201	Methadone fees – Medicaid		(56,970.76)
4202	Methadone fees – Medicare		(58,474.57)
4203	Evaluation fees		(183.00)
4204	Methadone fees – private pay		(446.00)
4205	Fee refunds		1,452.00
5100	Medical supplies		40,037.66
5101	Other inventory items		4,370.00
5102	Patient treats		747.95
5103	Methadone liquid		37,404.00
5104	Methadone tablet		12,254.40
5106	Laboratory fees		29,650.82
5107	Physicians fees		23,882.38
5108	Contract labor		1,600.00
6100	Salaries and wages		442,719.67
6101	Holiday pay		36,849.50
6102	Social security company		29,941.63
6103	Medicare company		7,002.49
6104	Fed and state unemployment		4,559.67
6105	Payroll expenses – other		7,264.09
7100	Utilities		8,255.58
7101	Rent – premises		28,450.00
7102	Security		1,751.50
7103	Cleaning		3,900.00
7105	Reference materials		789.11
7106	Office supplies		9,876.44
7108	Computer network maintenance		893.76
7109	Computer tech support		3,375.00
7110	Software costs		806.95
7111	Equipment rental		2,166.60
7112	Property taxes		4,185.00
7113	Liability insurance		13,491.92
7114	Advertising		1,829.42
7115	Licenses and permits		10,029.13
7116	Dues and subscriptions		412.91
7117	Postage and delivery		561.39
7119	Professional fees – other		8,803.43
7120	Legal fees		5,181.63
7121	Telephone		2,507.77
7122	Professional development		2,601.68
7123	Travel		2,964.49
7124	Meals		3,153.08
7125	Gifts – employees		2,324.76
7128	Loss on disposal of investments		16,825.00
7130	Construction costs new building		93,931.89
7131	Mortgage payments – second		10,000.00
7132	Mortgage payments – primary		42,000.00
7134	Donations			400.00
7135	Bank charges		1,138.60
7136	Cash (over) short		(17.08)
7137	Income taxes paid		4,265.67
TOTAL

2010

Adjustments

Trial balance

cr Adjusted

1020 Wells Fargo Checking

67,326.25

25,914.28

1570 Software system 20,675.00 20,675.00
1580 Equipment

38,535.01

1590 Leasehold improvements

14,153.07

1700 Employers Insurance Inc stock at cost

145,437.95

1802 Rent deposit 2,662.85 2,662.85
2000 Accounts payable

(16,768.42)

2100

(4,872.30)

2103 Federal payroll taxes payable

(223.43)

2104 NV Unemployment

(489.14)

3000 Common stock $1 par

(40,000.00)

3001 Additional paid in capital

(56,000.00)

3010 Retained earnings (196,351.12) (196,351.12)
– 0
– 0 – 0 – 0 0.00

6/30/10
Post closing
dr
	67,326.25
1025	Wells Fargo – Money market/investment		25,914.28
	38,535.01
		14,153.07
	145,437.95
	(16,768.42)
Accrued payroll		(4,872.30)
	(223.43)
	(489.14)
	(40,000.00)
	(56,000.00)

Fixed assets

Equipment

2010 2011

2007

4,400.00 4,400.00

15,400.01

2008

700.00

1,750.00

2009

400.00

1,200.00

2010

903.50 903.50

2011

– 0 – 0

64,260.54 2,200.00

– 0 19,253.51

Software system
2008 20,675.00

4,135.00

10,337.50

accumulated depreciation

2,200.00

Leasehold improvements

14,153.07

11,322.46

Total

2,200.00 6,817.50 9,635.00 10,938.50

Per books	Depreciation	ACC Depn 2010	Acc depn 2011
Cost		2007			2008		2009
22,000.01				2,200.00			4,400.00		15,400.01
3,500.00	350.00		700.00		1,750.00
4,000.00	800.00		1,200.00
9,035.00			903.50
25,725.53
4,750.00	5,500.00	6,803.50		19,253.51
2,067.50		4,135.00		10,337.50
	Total	84,935.54		6,817.50		9,635.00		10,938.50	29,591.01
Acc Amort
??		11,322.46
Buildings
99,088.61	40,913.46

Balance sheet

THE RENEWED LIFE CENTER INC.

BALANCE

SHE

ETS

At June 30, ASSETS 2011 2010 Current assets Cash and cash equivalents $ 116,546 $ 93,241 Accounts receivable, net of allowance for doubtful accounts of $15,201 and $14,136 35,098 18,881 Rent deposit – 2,663 Prepaid and other assets 7,316 6,110 Income tax recoverable 5,104

–
Total

current assets 164,064 120,895 Long term investments 34,000 138,000 Property, plant and equipment Land 130,000

–
Buildings 493,932

–
Equipment 64,261 38,535 Leasehold improvements

–

14,153 Software 20,675

20,675
708,868 73,363 Less accumulated depreciation and amortization (50,180) (40,913) Net property, plant and equipment 658,688 32,450 Total assets $ 856,752 $ 291,344 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 28,465 $ 16,768 Accrued payroll and taxes 15,138 7,063 Income taxes payable

–

4,266 Long term debt – current portion 26,427

–
Total current liabilities 70,030 28,097 Long term debt net of current protion 478,560

–
Total liabilities 548,590

28,097
Stockholders’ equity Common stock, $1 par value 50,000 40,000 Additional paid-in capital 90,000 56,000 Retained

earnings 162,775 174,685 Accumulated

other comprehensive gain (loss) 5,387 (7,438) Total stockholders’ equity 308,162 263,247 Total liabilities and stockholders’ equity

$ 856,752 $ 291,344
$ –

$ –

Income statement

THE RENEWED LIFE CENTER INC.

2011

income (expense)

5,104

net income

STATEMENT OF INCOME
Year Ended June 30,
Revenues
Fees for service	$ 852,040
Operating expenses
Salaries and benefits	529,859
Selling, general and administrative	272,881
Depreciation and amortization	23,579
Total operating expenses	826,319
Income from operations	25,721
	Other
Dividend Revenue	1,077
Interest expense	(26,987)
Loss on disposal of investments	(16,825)
Total other income (expense)	(42,735)
Loss before income taxes	(17,014)
Income tax benefit
Net loss	$	(11,910)
Other comprehensive income
Unrealized losses realized during the year	5,975
Unrealized holding gains on retained securities	6,850
Total other comprehensive income		12,825
	Comprehensive	$	915
Loss per share of common stock	$ (0.26)
Weighted average number of shares	45,000

SHE

THE RENEWED LIFE CENTER INC.

Other

Accumulated

Comprehensive Retained

Total

40,000

10,000 34,000 – –

– – 12,825 (11,910) 915

50,000

STATEMENT OF STOCKHOLDERS’ EQUITY
Common Stock
Shares	Additional Paid-
Outstanding	Amount	In Capital	Income (Loss)	Earnings
Balance, June 30, 2010	$ 40,000	$ 56,000	$ (7,438)	$ 174,685	$ 263,247
Issuance of stock		10,000	44,000
Comprehensive net income	– 0
Balance, June 30, 2011	$ 50,000	$ 90,000	$ 5,387	$ 162,775	$ 308,162