AD 632 Wk 2 Income and Cashflows Exercise. BU. Prices are negotiable.
Homework Assignment 4
Income and Cash Flow
Also, some Q&A on this assignment at the end of this document.
Student Name: <put your name here>
1. Calculate Earned Revenues
2013 Spring2
Big Blue University has a fiscal year that ends on June 30. 2014 Summer Session of the university runs seven weeks from June 9 through
July 28. Total tuition paid by students for the summer session amount to $1.4 million.
a.
How much revenue should be reflected in fiscal year ended June 30, 2014? Explain your answer.
(Hint: Calculate the number of weeks or days & the proportion before June 30)
Show calculations here …
b.
Would your answer to Part A be any different if the university had a tuition refund policy that no tuition would be refunded after
the end of the third week of the summer session classes? Explain your answer.
Put your response here …
2. Calculate Operating Income and Net Income
The following information is available from the accounting records of Monofill Inc. the year ended December 31, 2014:
Net cash provided by financing activities
Dividends paid
Extraordinary loss from flood, net of tax savings of $35,000
Income tax expense
Depreciation
Interest Expense
Net sales
Advertising expense
Accounts receivable
Cost of goods sold
General and administrative expenses
a.
$127,000
28,000
135,000
16,000
31,000
12,500
864,000
25,000
77,000
559,000
183,000
Calculate the operating income [also called “Income from operations; using the above appropriate entries] for the company.
[fill in your Income Statement-like numbers using the following table; see textbook Vol1 pg 123 [2011-edition]; pg 125 [2013-edition] for
comprehensive example]
Net sales
Cost of goods sold
… you get the picture: fill in appropriate entries & numbers
…
…
…
Operating Income =
b.
Calculate the company’s net income for the year.
[this is a continuation of part (a)]
Operating income [from (a)]
Interest expense
don’t forget to pay taxes, which the textbook forgot …
…
…
…
Net income (loss)
$864,000
(559,000)
305,000
3. Cash flows from operating, investing and financing activities – direct method
The following information is available from Moonvessel Co.’s accounting records of the year ended December 31, 2014 (amounts in
millions):
Cash dividends declared and paid
Interest and taxes paid
Collections from customers
Net Income
Repayment of long-term debt
Purchase of land and buildings
Cash paid to suppliers and employees
Depreciation
Issuance of common stock
Purchase of new delivery trucks
$340
110
1,530 e.g. Operating
120
320
70
1,230
70
400
80
[Using data from above, fill in your Statement of Cash Flow-like numbers using the tables below:]
[you might want to use above table’s column 3 to classify which of the 3 categories (Operating; Investing; Finance) each is …]
[… and make sure you observe cash flow sign convention: (+) for cash provided; (-) for cash used. Also some of the above cash flows have two
items lumped together, e.g. “interest and taxes paid”. In practice, they should be separated but here, we work with what is given … ]
[see textbook Vol1 pg 455 [2011-edition]; pg 523 [2013-edition] for comprehensive example]
a) Calculate Net cash provided (used) by operating activities
Cash received from customers
… fill in the rest
(in millions)
$1,530
Net cash provided (used) by operating activities
b) Calculate Net cash provided (used) by investing activities
… fill in the rest
(in millions)
Net cash provided (used) investing activities
c) Calculate Net cash provided by financing activities
… fill in the rest
(in millions)
Net cash provided (used) in financing activities
d) Calculate Net cash increase (decrease) in cash for the year
Net cash increase = (a) + (b) + (c)
(in millions)
4. Operating income versus net income
If you were interested in evaluating the profitability of a company and could have only limited historical data, which you prefer to know
the company’s operating income or net income for the past 5 years? Explain your answer.
No calculations; just explain/comment on your response here …
5. Accrual to cash flows
For each of the following items, calculate the cash and sources for cash uses that should be recognized on the statement of cash flows for
Baldwin Co. for the year ended Dec. 31, 2009.
[Hint: all the following subparts have the framework “Beginning Balance of some account + acquisitions during current period – use during current
period = Ending Balance of accounting period”. See that Merchandise Inventory example in page 459 [2011-edition] or pg 527 [2013-edition]. Page
167 [2011-edition] or Page 232 [2013-edition] on Inventory also have this similar framework; re-arranged: Beginning Inventory + Net Purchases –
COGS = Ending Inventory; replacing “Inventory” with other accounts is also done the same way]
a. Sales on account (all are collectible) amounted to $800,000, and accounts receivable decreased by $24,000. How much cash was
collected from customers?
Show your calculations here …
b. Income tax expense for the year was $148,000.00, and income taxes payable decreased by $34,000, how much cash was paid for
income taxes?
Show your calculations here …
c. Cost of goods sold amounted to $408,000, accounts payable increased by $19,000, and inventories increased by $14,000. How much
cash was paid to suppliers?
Show your calculations here …
d. The net book value of buildings increased by $240,000. No buildings were sold, and depreciation expense for the year was $190,000.
How much cash was paid to purchase the buildings?
Show your calculations here …
6. Circle-Square Ltd is in the process of liquidating and going out of business. When a company liquidates, it sells all of its assets realizing
whatever cash it can, and pays off its liabilities. Any difference between the book value of the asset (or liability) and the amount of cash
received (or paid) is recorded as a gain or loss which is reflected in the Owners’ Equity account.
At the date the firm decides to liquidate, its Balance Sheet shows $22,800 in cash, $114,200 in Accounts Receivable, $61,400 in
Inventory, $265,000 in Plant & Equipment, and Total Liabilities of $305,600.
It is estimated that:
1) the inventory can be disposed of in a liquidation sale for 80% of its cost.
2) all but 5 % of the accounts receivable can be collected.
3) plant and equipment can be sold for $190,000.
4) liabilities must be paid off in total.
After entering a transaction for each of these specific liquidation actions, what will be the final, ending balance for the company?
In the following table, for each row, record in the appropriate column the amount [irrelevant or n/a ones will be empty, i.e. 0] …
… make sure to use correct sign convention.
Finally tally up the final balances on the last row in each account [Cash thru Owner’s Equity columns] .
[Reminder: each row must balance, i.e. whatever numbers you fill in, “Cash + A/R + Inventory + PPE = Liablities + Owner’s Equity]
Set up the accounting equation and show the effects of the transactions described. Since total assets must equal total liabilities and
owners’ equity, the unadjusted owners’ equity can be calculated by subtracting liabilities from the total of the assets given.
Account:
Cash
+ Accounts
+Inventory
+ Plant &
– Liabilities
+ Owners’
Receivable
Equipment
Equity
a. Starting Position
22,800
+114,200
+61,400
+265,000
= 305,600
+157,800
b Collection of Accts Receivable
.
c. Inventory liquidation
d. Sale of Plant & Equipment
e. Payment of liabilities
f. Balance (after all the
transactions are completed)
Q&A on this Assignment
Yes, you can say that your "incurred" is the "expensed" amount of $148,000 during this accounting period.
But as suggested in this question and it also happens quite often with companies, the actual amount of cash that was used to pay for taxes was a different
amount.
As a result, this difference, which probably was a situation during the previous accounting period (higher taxes payable), continues to get carried forward to
the next accounting in the form of a different amount of taxes payable (lowered by $34,000). So, this question is asking how much cash was paid out that
leads to taxable payable being lowered by $34,000 while it has a tax expense of $148,000 during this accounting period.
I guess the best analogy is the following:
1) Last week, I owe you $30.
2) Then this week, I owe you another $40.
3) I then repay you $50.
4) At the end of the day, I still owe you $20.
Thus overall, I have actually paid you $50 in cash and I have managed to reduce my IOU by $10 (sort of like the above’s taxes payable) from $30 to $20.
~ Ira
—– Original Message —On Excercise 4, question 5b, the question states "Income Tax expense for the year was $148,000.00…"
Do you mean this to be "Income taxes incurred from the year’s operations was $148,000…"
I ask because if the Income Tax Expense for the year (as recorded on the income statement) is $148,000, the answer to the question is simply $148,000.
(This amount would be made up of the $34,000 drop in income taxes payable and $114,000 new taxes incurred during the period). Since the question
asks "how much cash was paid for income taxes", this extra information is not required.
Wanted to be sure to give you the answer you were looking for.
Thanks.
Extraordinary Losses:
See Vol 1, page 525 for definition and page 526 Exhibit 13A.1 for an example on this.
