The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2014 appear below.
Net income of $44,000 was reported, and dividends of $33,000 were paid in 2014. New equipment was purchased and none was sold.
(a) Prepare a statement of cash flows for the year 2014.
(b) Compute the current ratio (current assets 4 current liabilities) as of January 1, 2014, and December 31, 2014, and compute free cash flow for the year 2014.
(c) In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility.
> Steve Madison needs $250,000 in 10 years. How much must he invest at the end of each year, at 11% interest, to meet his needs?
> What are the components of an interest rate? Why is it important for accountants to understand these components?
> Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 12% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be
> Bo Newman will invest $10,000 today in a fund that earns 5% annual interest. How many years will it take for the fund to grow to $17,100?
> Candice Willis will invest $30,000 today. She needs $150,000 in 21 years. What annual interest rate must she earn?
> Tony Bautista needs $25,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?
> Recently, Glenda Estes was interested in purchasing a Honda Acura. The salesperson indicated that the price of the car was either $27,600 cash or $6,900 at the end of each of 5 years. Compute the effective-interest rate to the nearest percent that Glenda
> Answer the following questions. (a) On May 1, 2014, Goldberg Company sold some machinery to Newlin Company on an installment contract basis. The contract required five equal annual payments, with the first payment due on May 1, 2014. What present valu
> Alexander Enterprises leases property to Hamilton, Inc. Because Hamilton, Inc. is experiencing financial difficulty, Alexander agrees to receive five rents of $20,000 at the end of each year, with the rents deferred 3 years. What is the present value of
> In a book named Treasure, the reader has to figure out where a 2.2 pound, 24 kt gold horse has been buried. If the horse is found, a prize of $25,000 a year for 20 years is provided. The actual cost to the publisher to purchase an annuity to pay for the
> Explain how the future value of an ordinary annuity interest table is converted to the future value of an annuity due interest table.
> Assume the same situation as in Question 11, except that the four equal amounts are deposited at the beginning of the period rather than at the end. In this case, what amount must be deposited at the beginning of each period? (Round to two decimals.)
> What is the nature of interest? Distinguish between “simple interest” and “compound interest.”
> Discuss at least two situations in which estimates could affect the usefulness of information in the balance sheet.
> Sergey Co. has net cash provided by operating activities of $1,200,000. Its average current liabilities for the period are $1,000,000, and its average total liabilities are $1,500,000. Comment on the company’s liquidity and financial flexibility,
> State the generally accepted accounting principle applicable to balance sheet valuation of each of the following assets. (a) Trade accounts receivable. (b) Land. (c) Inventories. (d) Trading securities (common stock of other companies). (e) Prepai
> Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as $90,000. (a) Accounts receivable increased from $34,00
> What is meant by solvency? What information in the balance sheet can be used to assess a company’s solvency?
> Differentiate between operating activities, investing activities, and financing activities.
> Net income for the year for Carrie, Inc. was $750,000, but the statement of cash flows reports that net cash provided by operating activities was $860,000. What might account for the difference?
> Where should the following items be shown on the balance sheet, if shown at all? (a) Allowance for doubtful accounts. (b) Merchandise held on consignment. (c) Advances received on sales contract. (d) Cash surrender value of life insurance. (e) Lan
> In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use? (a) Treasury stock (recorded at cost). (b) Checking account at bank. (c) Land (held as an investment). (d) Sinking fund. (e)
> Crane Corporation has the following accounts included in its December 31, 2014, trial balance: Equity Investments (trading) $21,000; Goodwill $150,000; Prepaid Insurance $12,000; Patents $220,000; Franchises $130,000. Prepare the intangible assets sect
> Lowell Company’s December 31, 2014, trial balance includes the following accounts: Inventory $120,000; Buildings $207,000; Accumulated Depreciation—Equipment $19,000; Equipment $190,000; Land (held for investment) $46,000; Accumulated Depre
> What is the purpose of a free cash flow analysis?
> A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?
> How does information from the balance sheet help users of the financial statements?
> The net income for the year for Genesis, Inc. is $750,000, but the statement of cash flows reports that the net cash provided by operating activities is $640,000. What might account for the difference?
> Rainmaker Company prepares its financial statements in accordance with IFRS. In 2014, Rainmaker recorded the following revaluation adjustments related to its buildings and land: The Company’s building increased in value by $200,000; its land decl
> Briefly describe the convergence efforts related to financial statement presentation.
> Included in Outkast Company’s December 31, 2014, trial balance are the following accounts: Prepaid Rent $5,200; Debt Investments (trading) $56,000; Unearned Fees $17,000; Land (held for investment) $39,000; Notes Receivable (long-term) $42,000. P
> In its December 31, 2014, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?
> Briefly describe some of the similarities and differences between GAAP and IFRS with respect to statement of financial position (balance sheet) reporting.
> Where can authoritative IFRS guidance be found related to the statement of financial position (balance sheet) and the statement of cash flows?
> The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2014. Because he must leave on an emergency, he asks you to f
> Carol Keene, corporate comptroller for Dumaine Industries, is trying to decide how to present “Property, plant, and equipment” in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant
> Presented below is the balance sheet of Sameed Brothers Corporation (000s omitted). Instructions Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized.
> FONZARELLI CORPORATION BALANCE SHEET (PARTIAL) DECEMBER 31, 2014 Assets Current assets $ 100,000 27,500 37,000 75,000 Cash Unclaimed payroll checks Debt investments (trading) (fair value $30,000) at cost Accounts receivable (less bad debt reserve) Inv
> In an examination of Arenes Corporation as of December 31, 2014, you have learned that the following situations exist. No entries have been made in the accounting records for these items. 1. The corporation erected its present factory building in 1999
> What is the purpose of a statement of cash flows? How does it differ from a balance sheet and an income statement?
> Aero Inc. had the following balance sheet at December 31, 2013. During 2014, the following occurred. 1. Aero liquidated its available-for-sale investment portfolio at a loss of $5,000. 2. A tract of land was purchased for $38,000. 3. An additio
> Koch Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2014: Cash $7,000; Land $40,000; Patents $12,500; Accounts Receivable $90,000; Prepaid Insurance $5,200; Inventory $30,000; Allowance for Doubtful Ac
> Lansbury Inc. had the following balance sheet at December 31, 2013. During 2014, the following occurred. 1. Lansbury Inc. sold part of its investment portfolio for $15,000. This transaction resulted in a gain of $3,400 for the firm. The company
> Presented below is the balance sheet of Sargent Corporation for the current year, 2014. The following information is presented. 1. The current assets section includes cash $150,000, accounts receivable $170,000 less $10,000 for allowance for doub
> How does separating current assets from property, plant, and equipment in the balance sheet help analysts?
> The balance sheet of Kishwaukee Corporation as of December 31, 2014, is as follows. Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of appraisal value over cost was $570,000. Depreciatio
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> Presented below are a number of balance sheet items for Montoya, Inc., for the current year, 2014. Instructions Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000
> Presented below is a list of accounts in alphabetical order. Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)
> A comparative balance sheet for Shabbona Corporation is presented below. Additional information: 1. Net income for 2014 was $125,000. No gains or losses were recorded in 2014. 2. Cash dividends of $60,000 were declared and paid. 3. Bonds payabl
> The creditors of Chester Company agree to accept promissory notes for the amount of its indebtedness with a proviso that two-thirds of the annual profits must be applied to their liquidation. How should these notes be reported on the balance sheet of t
> Harding Corporation has the following accounts included in its December 31, 2014, trial balance: Accounts Receivable $110,000; Inventory $290,000; Allowance for Doubtful Accounts $8,000; Patents $72,000; Prepaid Insurance $9,500; Accounts Payable $77,0
> Presented below is a condensed version of the comparative balance sheets for Zubin Mehta Corporation for the last two years at December 31. Additional information: Investments were sold at a loss (not extraordinary) of $10,000; no equipment was so
> The comparative balance sheets of Constantine Cavamanlis Inc. at the beginning and the end of the year 2014 are as follows Net income of $44,000 was reported, and dividends of $23,000 were paid in 2014. New equipment was purchased and none was sold.
> The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as: 1. Operating activity—add to net income. 2. Operating activity—ded
> Presented below is the trial balance of Scott Butler Corporation at December 31, 2014. Instructions Prepare a balance sheet at December 31, 2014, for Scott Butler Corporation. (Ignore income taxes.)
> Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?
> Presented below is the adjusted trial balance of Kelly Corporation at December 31, 2014. Additional information: 1. Net loss for the year was $2,500. 2. No dividends were declared during 2014. Instructions Prepare a classified balance sheet as
> Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year. (a) On December 20, 2014, a former employee filed a legal action agai
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> Frederic Chopin Corporation is preparing its December 31, 2014, balance sheet. The following items may be reported as either a current or long-term liability. 1. On December 15, 2014, Chopin declared a cash dividend of $2.50 per share to stockholders
> Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014. The following additional information is available. 1. Inventories are valued at lower-of-cost-or-market using LIFO. 2. Equipment is recorded at cost. Accumu
> What is the profession’s recommendation in regard to the use of the term “surplus”? Explain.
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> The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2014. The following additional information is provided. 1. Cash includes $1,200 in a petty cash fund and $15,000 in a bond sinking fund. 2. The net accou
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> Assume that Denis Savard Inc. has the following accounts at the end of the current year. 2 3 Instructions Prepare a classified balance sheet in good form. (No monetary amounts are necessary.)
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> Presented below are a number of balance sheet accounts of Deep Blue Something, Inc. (a) Investment in Preferred Stock. (b) Treasury Stock. (c) Common Stock. (d) Dividends Payable. (e) Accumulated Depreciation—Equipment. (f) Construction in
> What are the major limitations of the balance sheet as a source of information?
> Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of $400,000.
> Use the information presented in BE5-14 for Martinez Corporation to compute the net cash used (provided) by financing activities.
> Martinez Corporation engaged in the following cash transactions during 2014. Compute the net cash provided (used) by investing activities.
> What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?
> Ames Company reported 2014 net income of $151,000. During 2014, accounts receivable increased by $13,000 and accounts payable increased by $9,500. Depreciation expense was $44,000. Prepare the cash flows from operating activities section of the stateme
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> Patrick Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2014: Prepaid Rent $12,000; Goodwill $50,000; Franchise Fees Receivable $2,000; Franchises $47,000; Patents $33,000; Trademarks $10,000. Prepare t
> What is a “Summary of Significant Accounting Policies”?
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> What are reversing entries, and why are they used?
> List two types of transactions that would receive different accounting treatment using (a) strict cash-basis accounting, and (b) a modified cash basis.
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> Distinguish between cash-basis accounting and accrual basis accounting. Why is accrual-basis accounting acceptable for most businesses and the cash-basis unacceptable in the preparation of an income statement and a balance sheet?
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> What are closing entries and why are they necessary?
> What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Ca
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> Is it necessary that a trial balance be taken periodically? What purpose does it serve?
> Why are revenue and expense accounts called temporary or nominal accounts?
> What are adjusting entries and why are they necessary?
> What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash.