2. Very Intormation: On December 30th, Terry's management completed negotiations with one of their suppliers to cover Terry's $28,000 account with shares of Terry's common stock. Rather than issue additional shares (and deal with the requirements of the SEC), Terry issued the supplier 7,200 shares of the treasury stock originally purchased on November 15, Year 3. As a relatively new public corporation, Terry still has several large investors that hold seats on its d and have significant control over the company's decisions. These investors have expressed concern with the company's new Indirect Method Statement of Cash Flows and have asked the management team to switch to a Direct Method Statement with the required Schedule to Reconcile Net Income to Cash Provided from Operations. Because of the influence of these investors, Terry's management team has no choice but to agree with their request (although, they aren't thrilled with the extra work this change will cause). They have asked you to convert the current Statement of Cash Flows into a Direct Method version. The management team has decided to condense the line items used in the CFO section to include only seven (7) lines: Customers, Inventory, Selling Expenses, Administrative Expenses, Rent, Interest, and Taxes. In addition, they would like to know the effect of their contract with the supplier, if any, on the following ratios: Debt to Equity Current Ratio ROE Assignment: Calculations 1. Calculate each of the three (3) ratios before you make any adjustments. 2. Make the appropriate journal entries to correctly record the payment on A/P with treasury stock. 3. Make the appropriate journal entry, if any, to correctly record the tax effect of the payment on account. 4. Make any necessary changes to the Income Statement and Balance Sheet, then create a new Direct Method Statement of Cash Flows for Terry. Don't forget the reconciliation required in the footnotes! 5. Calculate the three (3) ratios after you make any adjustments $566,594 Terry Co Statement of Cask Flors For Year Ended 12/31/Year 3 Cash Flow from Operations Net Income Adjustments Change in AIR ($202,500) Change in Inventory 1411,000 Change in Prepaid Insurance $60,750 Change in Prepaid Rent ($20,250) Depreciation & Amortization $480,644 amortization of bond discount $289 Stock Option Compensation $30,720 Change in AIP $106.537 Change in Income Tax Payable $130,714 change in Interest accrued $59,891 Change in Unearned Revenue $18,800 Change in Wages Payable ($12,150 Net Cash Flow from Operations $1,064,445 $1,731,033 Cask Flor fros lavestments Purchase of Land Purchase of Equipment Net Cach Flow from Investments ($324,000) [($1,231,000) ($1.555.000) Cash Flow from Financing Repayment of Loans Payment on Lease Purchase of T-Stk Issuance of Bonds payable Issuance of Notes Payable Payments of Dividends Net Cash Flow from Financing ($40,500) (5794.755) ($64,000) $204070 $486,000 ($200,000) ($408.185) Net Increase (Decrease) in Cash Cash. January 1, Year 3 Cash, December 31, Year 3 (5233.146) $405,000 171,854 - Tento Multi-Step Income Statement For the Year Ended December 31. Year 3 Salse Revenus Sales Revenue Lese: Sales Discounts $89,100 Sales Returns 1708,150 Net Sales Revenue 18,390,400 $737,850 $7,582,550 2 = 10 Data Gooda Sold Cost of Goods Sold Gross Profit $4,692,325 $2,300,224 2 $151,875 $68,850 139,488 $111375 $405,000 $66,313 $842,907 WONGAN peting activities Selling Expenses Advertising Expense Bad Debt Expense Miscellaneous Selling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense Total Selling Expenses Administrative Expenses Executive Salaries Expense Depreciation & Amortization Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense R&D Expense Utilities Expense Total Administrative Expenses Income from Operations $354,375 $480,644 $29,363 13,999 $51,388 $121,500 $60,750 $1,082,019 $1,324,926 1975,298 - - $25,312 ($111.8181 Other Gain and Losses Best Revenue Interest Expense locome from Continuing Operations before Taxes Income Tox Expos Not locome (386,506) 3888.792 ($229,138) $666,594 Lon Terry Co. Balance Sheet As of 12/31/Year 3 Year 3 Year 2 Assets $148,815 $405,000 $729,000 $688,500 ($40,500) ($202,500) $723,000 $1,134,000 $60.750 $121,500 $101,250 $81.000 $1,722,315 $2,227,500 Current Assets Cash AIR Allowance for Bad Debts Inventory Prepaid Insurance Prepaid Rent Total Current Assets Long-term Investments Loans to other businesses Expansion Fund Total Long-term Investments PPE Land Building ROU asset Equipment Accumulated Depreciation Total PPE Intangible Assets Patents.net Total Assets $324,000 $41,420 $365,420 $324,000 $41,420 $365,420 10 $891,000 $567.000 $648,000 $648,000 $3,564,665 $2,268,000 $1,053,000 ($1290 644) ($810.000) $6,081,021 $1.458.000 $121.500 $8,290 256 $121.500 $4,172,420 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Income Tax Payable Interest Payable Unearned Revenue Wages Payable Current Portion of Loan Payable Tot Current Liabilities Long-rom Dobe $592,537 $211,714 $4.813 $140.300 $89.100 $40.500 $1078.964 $486.000 $81.000 30 $121.500 $101250 $40.500 $830.250 Inter2 Terry Case 85 - Excel ORMULAS DATA REVIEW VIEW Custom Wrap Text 3 Merge & Center - -A-EEE E $ . % *8.99 Conditional Format as Formatting Table Styles Cell Styles Insert Delete Format Alignment Number Cells eAssets GI HII Change in Wages Net Cash Flow from PPE Land Building ROU asset Equipment Accumulated Depreciation Total PPE Intangible Assets Patents, net Total Assets $891,000 $567,000 $648,000 $648,000 $3,564,665 $0 $2,268,000 $1,053,000 ($1.290,644) ($810,000) $6,081,021 $1,458,000 ! $121.500 $121.500 $8,290,256 $4,172,420 Cash Flow from Purchase of Lang Purchase of Equi Net Cash Flow from Cash Flow from Repayment of Lo Payment on Leas Purchase of T-S Issuance of Bond Issuance of Note Payments of Divi Net Cash Flow from $1,924,926 $975,298 $486,000 $81,000 $0 $592,537 $211,714 $4,813 $140,300 $89,100 $40,500 $1,078,964 ($86,506) $888,792 ($222.198) 3666,594 $121,500 $101,250 $40,500 $830,250 Net Increase Deci Cash January 14 Cash, December $2.08 $198 319,000 325,024 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Income Tax Payable Interest Payable Unearned Revenue Wages Payable Current Portion of Loan Payable Total Current Liabilities Long-term Debt Lease Liability Loan Payable Bonds Payable, net Notes Payable Total Long-term Debt Total Liabilities Stockholders' Equity Common stock ($1 par, 560,000 authorized, 320,000 issued and 312,000 outstanding) Additional Paid-in capital Treasury Stook (8000 shares owned) Retained Earnings Accumulated OCI Total Stockholders' Equity Total Liabilities and Stockholder's Equity $2,808,988 $0 $445,500 $486,000 $204,359 $0 $1,134,000 $648,000 $4,592.847 $1.134.000 $5,671,811 $1.964.250 $320,000 $320,000 $273.720 ($64.000) $2,122,954 ($11.190) $2.641.484 $8.313,295 $243.000 $0 $1,656.360 ($11. 190) $2,208,170 $4,172,420