Colo Company and Choi Solutions (ACC225 Comprehensive Problems )

Chapter 2 Problem 27,28,29 on pp.51-53 Foundations of Financial Management 27. Prepare a statement of cash flows for the Crosby Corporation. Follow the general procedures indicated in Table 2-10 on page 38 . Statement of cash flows (L04) Current Assets Liabilities Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 Accounts payable . . . . . . . . $ 20,000 Accounts receivable . . . . . . . . . . . . . 22,500 Notes payable . . . . . . . . . . . 30,000 Inventory . . . . . . . . . . . . . . . . . . . . . . 37,500 Bonds payable . . . . . . . . . . . 75,000 Prepaid expenses . . . . . . . . . . . . . . . 18,000 Fixed Assets Stockholders’ Equity Plant and equipment (gross) . . . . . . . $375,000 Common stock . . . . . . . . . . $112,500 Paid-in capital . . . . . . . . . . . 37,500 Less: Accumulated depreciation . . . . 75,000 Retained earnings . . . . . . . . 118,000 Net plant and assets . . . . . . . . . . . . . 300,000 Total liabilities and Total assets . . . . . . . . . . . . . . . . . . . . $393,000 stockholders’ equity . . . . . $393,000 continued CROSBY CORPORATION Income Statement For the Year Ended December 31, 2008 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 Gross profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 Selling and administrative expense . . . . . . . . . . . . . . . . . . . . 420,000 Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Block-Hirt-Danielsen: Foundations of Financial Management, 13th Edition II. Financial Analysis and Planning 2. Review of Accounting © The McGraw-Hill Companies, 2009 52 Part 2 Financial Analysis and Planning www.mhhe.com/bhd13e Statement of Retained Earnings For the Year Ended December 31, 2008 Retained earnings, balance, January 1, 2008 . . . . . . . . . . . . . . . . . . . . $500,000 Add: Earnings available to common stockholders, 2008 . . . . . . . . . . 150,000 Deduct: Cash dividends declared and paid in 2008 . . . . . . . . . . . . . 50,000 Retained earnings, balance, December 31, 2008 . . . . . . . . . . . . . . . . . $600,000 CROSBY CORPORATION Income Statement For the Year Ended December 31, 2008 Earnings after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000 Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Earnings available to common stockholders . . . . . . . . . . . . . $ 150,000 Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 440,000 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 400,000 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 50,000 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000 890,000 Long-term liabilities: Bonds payable, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 120,000 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,000 1,010,000 Comparative Balance Sheets For 2007 and 2008 Year-End 2007 Year-End 2008 Assets Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ 100,000 Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 350,000 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 430,000 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 30,000 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,000 910,000 Investments (long-term securities) . . . . . . . . . . . . . . . . . . . 80,000 70,000 Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,400,000 Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . 1,000,000 1,150,000 Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,250,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,910,000 $2,230,000 Stockholders’ equity: Preferred stock, $100 per value . . . . . . . . . . . . . . . . . . . . . . 90,000 90,000 Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . 120,000 120,000 Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . 410,000 410,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 600,000 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . 1,120,000 1,220,000 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . $1,910,000 $2,230,000 Block-Hirt-Danielsen: Foundations of Financial Management, 13th Edition II. Financial Analysis and Planning 2. Review of Accounting © The McGraw-Hill Companies, 2009 Chapter 2 Review of Accounting 53 www.mhhe.com/bhd13e W E B E X E R C I S E (The following questions apply to the Crosby Corporation, as presented in problem 27.) 28. Describe the general relationship between net income and net cash flows from operating activities for the firm. 29. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.

  

Resources: Appendix A, Fundamental Accounting Principles, p. 301, and Appendix C

? Complete the Comprehensive Problem-Perpetual. In this project, follow the steps of the accounting cycle to process given transactions in a business environment. Then, synthesize special journals, a trial balance, financial statements, and a post-closing trial balance.

? Use the spreadsheet in Appendix C available on the student web page to complete the problems. Be sure to use the tabs labeled P07C and Given P07C.

? Post your answers as an attachment.

 

Given Data P07C: COLO COMPANY Inv. No.Check DateDescriptionNameor DateNo.TermsAmountMay1Paid rent (80% selling space, 20% office space)S&P Management Co. 3410 $3,710 2Sold merchandise on credit (cost $4,100)Hensel Company8785 2/10, n/60 6,100 2Issued credit memo on returned merch.Knox, Inc. Apr. 28 175 Total selling price (gross)Knox, Inc. Apr. 28 4,725 3Received credit memo on returned merch.Peyton Products Apr. 29 798 4Purchased merchandise on creditGear Supply Co. May 4 n/10 EOM 37,072 Purchased store supplies on creditGear Supply Co. May 4 n/10 EOM 574 Purchased office supplies on creditGear Supply Co. May 4 n/10 EOM 83 5Received payment less discount and returnKnox, Inc. Apr. 28 n/10 EOM ? 8Paid inv. less 2 % discount and May 3 returnPeyton Products Apr. 29 3411 ? 9Sold store supplies for cash at cost 350 10Purchased office equipment on creditGear Supply Co. May 10 n/10 EOM 4,074 11Received payment less discountHensel Company May 2 ? 11Purchased merchandise on creditGarcia, Inc. May 10 2/10, n/60 8,800 12Received credit memo on returned merch.Gear Supply Co. May 10 854 15Check issued for sales salariesPayroll 3412 5,320 Check issued for office salariesPayroll 3412 3,150 15Cash sales for first half of month (cost $38,200) 59,220 16Sold merchandise on credit (cost $1,890)Hensel Company8786 2/10, n/60 3,990 17Purchased merchandise on creditFink Corp. May 14 2/10, n/60 13,650 19Paid invoice less discountGarcia, Inc. May 10 3413 22Sold merchandise on credit (cost $4,990)Lee Services8787 2/10, n/60 6,850 23Paid invoice less discountFink Corp. May 14 3414 ? 24Purchased merchandise on creditGear Supply Co. May 23 n/10 EOM 8,120 Purchased store supplies on creditGear Supply Co. May 23 n/10 EOM 630 Purchased office supplies on creditGear Supply Co. May 23 n/10 EOM 280 25Purchased merchandise on creditPeyton Products May 23 2/10, n/30 3,080 26Sold merchandise on credit (cost $8,230)Crane Corp.8788 2/10, n/60 14,210 26Paid April electric billPerennial Power 3415 1,283 29Issued check to owner for personal useJenny Colo 3416 7,000 30Received payment less discountLee Services May 22 ? 30Check issued for sales salariesPayroll 3417 5,320 Check issued for office salariesPayroll 3417 3,150 31Cash sales for second half of month (cost $42,500) 66,052 Additional information: a. Expired insurance$553 b. Ending store supplies inventory 2,632 c. Ending office supplies inventory 504 d. Estimated depreciation of store equipment 567 e. Estimated depreciation of office equipment 329