1. TOPIC : CASH FLOW, CRITICAL THINKING (25 Marks) Gerarld Adriell and Nathilda Hillary are examining the following statement of cash flows for Doodling Company for the year ended December 31, 2020. DOODLING COMPANY Statement of Cash Flows For the Year Ended December 31, 2020 Sources of cash From sales of merchandise From sale of capital stock From sale of investment (purchased below) From depreciation From issuance of note for truck From interest on investments Total sources of cash $ 380,000 420,000 80,000 55,000 20,000 6,000 961,000 Uses of cash For purchase of fixtures and equipment For merchandise purchased for resale For operating expenses (including depreciation) For purchase of investment For purchase of truck by issuance of note For purchase of treasury stock For interest on note payable Total uses of cash $ 330,000 258,000 160,000 75,000 20,000 10,000 3,000 856,000 Doodling's statement of cash flows, according to Gerarld, is a good representation of a fantastic first year, with cash increasing by $105,000. Nathilda responds that her first year was not particularly successful. Rather, she claims that the year was a failure of operations, that the financial statement is improperly presented, and that $105,000 is not the actual increase in cash. At the start of the year, the cash balance was $140,000. Instructions (a) Using the data provided, prepare a statement of cash flows in proper form using the indirect method. The only noncash items in the income statement are depreciation and the gain from the sale of the investment. (b) With whom do you agree, Gerarld or Nathilda? Explain your position. 2. TOPIC : PREPARE A STATEMENT OF CASH FLOW (25 Marks) Presented below are the comparative balance sheets for WESTROCK Company at December 31. WESTROCK INC. Comparative Balance Sheets December 31 2021 Assets Plant assets Prepaid expenses Accounts receivable Inventories Cash Accumulated depreciation Investments 2019 ($) 270,000 28,400 92,800 112,500 90,800 (50,000) 138,000 2018($) 242,500 26,000 33,000 102,850 48,400 (52,000) 114,000 Total 682,500 514,750 Liabilities and Stockholders' Equity Common stock Accrued expenses payable Retained earnings Accounts payable Bonds payable 220,000 16,500 224,000 112,000 110,000 175,000 17,000 105,450 67,300 150,000 Total 682,500 514,750 WESTROCK INC. Income Statement For the Year Ended December 31, 2021 (in USD Currency/$) 392,780 (135,460) Sales Cost of goods sold Operating expenses, excluding depreciation Depreciation expense Income taxes exp Interest expense Loss on sale of plant assets Net income (12,410) (46,500) (27,280) (4,730) (7,500) 158,900 Additional information: 1. During the year, $85,000 in new plant assets were purchased with cash.. 2. Old plant assets having an original cost of $57,500 were sold for $1,500 cash. 3. Bonds matured and were paid off at face value for cash. 4. A cash dividend of $40,350 was declared and paid during the year. Instructions a. Prepare a statement of cash flows using the indirect method. b. Prepare a statement of cash flows using the direct method. C. Compute free cash flow, and What does Free cash flow describe to company 3. TOPIC: INVESTMENT, CRITICAL THINKING (20 Marks) "SITUATION AND CONDITION ON ANNUAL STOCKHOLDERS MEETING "Why did management sell the shares in JETSTARS Firm at a loss while this company has been tremendously profitable during the period its stock was held by STARGAZING?" stockholder Edwin Morton questions at the start of the annual stockholders' meeting of STARGAZING Corporation. Because president JOSEPH CASANOVA has just finished speaking about STARGAZING'S recent success and promising future, he is taken aback by this remark and answers, "I recall paying $1,300,000 for that stock some years ago, and I am sure we sold that stock at a considerably greater price." "I'm sure you're mistaken." "Well, right here in footnote number 7 to the annual report, it states that on the last day of the year, 240,000 shares, or a 30% interest in JETSTAR, were sold," Morton retorts. JETSTAR earned $520,000 this year and paid out $160,000 in cash dividends, according to the report. Furthermore, according to a summary statement, JETSTAR earned $1,240,000 in previous years while STARGAZING held JETSTAR stock and paid out $440,000 in dividends. Finally, this year's income statement reveals a $180,000 loss on the sale of JETSTAR stock. So I don't believe I'm mistaken." Red-faced, President JOSEPH CASANOVA turns to you student of UPH Medan, and feel humiliated Instructions President Joseph Casanova needs your help to explain in detail and refute Morton's opinion, He need your answer the following, as follow (a) What dollar amount did STARGAZING receive upon the sale of the JETSTAR stock? (b) Explain why both stockholder Edwin Morton and President Joseph Casanova are correct. 4. TOPIC : INVESTMENT, JOURNAL AND RECORDING (15 Marks) The following are in Samuelson Company's portfolio of long-term available-for-sale securities at December 31, 2021. Cost 700 shares of Ark Corporation common stock $35,000 900 shares of Landmark Corporation common stock 42,000 800 shares of Sprinkle Corporation preferred stock 22,400 On December 31, the total cost of the portfolio equaled total fair value. Samuelson Company had the following transactions related to the securities during 2019. Jan. 7 Sold 700 shares of Ark Corporation common stock at $56 per share, less brokerage fees of $700. 10 Purchased 300 shares, $70 par value common stock of Phenom Corporation at $78 per share, plus brokerage fees of $240. 26 Received a cash dividend of $1.15 per share on Landmark Corporation common stock. Feb. 2 Received cash dividends of $0.40 per share on Sprinkle Corporation preferred stock. 10 Sold all 800 shares of Sprinkle Corporation preferred stock at $26 per share less brokerage fees of $180. July 1 Received a cash dividend of $1.00 per share on Landmark Corporation common stock. Sept. 1 Purchased an additional 800 shares of the $70 par value common stock of Phenom Corporation at $75 per share, plus brokerage fees of $900. Dec. 15 Received a cash dividend of $1.50 per share on Phenom Corporation common stock. At December 31, 2019, the fair values of the securities were: Landmark Corporation common stock $48 per share Phenom Corporation common stock $72 per share Samuelson uses separate account titles for each investment, such as Investment in Landmark Corporation Common Stock. Instructions (a) Prepare journal entries to record the transactions. (b) Post to the investment accounts. (Use T accounts.) (c) Prepare the adjusting entry at December 31, 2019, to report the portfolio at fair value. (d) Show the balance sheet presentation at December 31, 2019, for the investment- related accounts. 5. TOPIC: LONG-TERM LIABILITIES (15 Marks) The following is taken from the Nike Corp. balance sheet. NIKE CORPORATION Balance Sheet (partial) December 31, 2020 Current liabilities Bond interest payable (for 6 months from July 1 to December 31) Long-term liabilities Bonds payable, 9%, due January 1, 2031 $2,400,000 Less: Discount on bonds payable 90,000 $ 108,000 2.310,000 Interest is payable semi-annually on January 1 and July 1. The bonds are callable on any semi-annual interest date. NIKE uses straight-line amortization for any bond premium or discount. From December 31, 2020, the bonds will be outstanding for an additional 10 years (120 months). Instructions (Round all computations to the nearest dollar). (a) Journalize the payment of bond interest on January 1, 2021. (b) Prepare the entry to amortize bond discount and to pay the interest due on July 1, 2021, assuming that interest was not accrued on June 30. (c) Assume that on July 1, 2021, after paying interest, NIKE Corp. calls bonds having a face value of $800,000. The call price is 102. Record the redemption of the bonds. (d) Prepare the adjusting entry at December 31, 2021, to amortize bond discount and to accrue interest on the remaining bonds