AC 313 Statement of Cash Flows Assessment (50 Points) Presented below are the balance sheets of Ace Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands. Ace Corporation Balance Sheets December 31, Year 1 and Year 2 Year 1 S 85 245 Assets Year 2 S 127 253 Cash Accounts receivable Less: Allowance for doubtful accounts Prepaid insurance Inventory Long-term investment Land Buildings and equipment Less: Accumulated depreciation Trademark Total Assets 225 65 160 250 (75) 234 42 160 300 (100) $1036 Liabilities & Stockholders Equit S 36 Accounts payable Salaries payable Deferred tax liability Lease liability Bonds Payable Less: Discount Common Stock Paid-In Capital -in excess of par Preferred Stock Retained Earnings Total Liabilities & Stockholders' Equity 15 18 125 (24) 280 105 70 (26) Ace Corporation Income Statement For the Year Ended December 31, Year 2 Net sales revenue Investment revenue S 380 12 Operating Expenses Cost of Goods Salaries expense Depreciation expense Trademark amortization Bad debts expense Insurance expense Bond interest expense S.150 58 35 20 45 319 Operating Income Other Income (Expense) $(27) Loss on building fir Gain on sale of investments Pre-Tax Income from Continuing Operations Less: Income Tax Expense Net Income (23) S 50 25 $ 25 Ace Corporation Income Statement For the Year Ended December 31, Year 2 Net sales revenue Investment revenue S 380 12 Operating Expenses Cost of Goods Salaries expense Depreciation expense Trademark amortization Bad debts expense Insurance expense Bond interest expense S.150 58 35 20 45 319 Operating Income Other Income (Expense) $(27) Loss on building fir Gain on sale of investments Pre-Tax Income from Continuing Operations Less: Income Tax Expense Net Income (23) S 50 25 $ 25 Additional Information: 1. Shareholders were paid cash dividends of S18 million. 2. A building that originally cost S40 million, and which was one-fourth depreciated, was 3. Investment revenue includes Ace Corporation's S7 million share of the net income of Beta 4. S30 million par value of common stock was sold for $60 million, and $70 million of 5. A long-term investment in bonds, originally purchased for S30 million, was sold for $34 6. Pretax accounting income exceeded taxable income causing the deferred income tax 7. The right to use a building was acquired with a seven-year lease agreement, present value destroyed by fire. Some undamaged parts were sold for $3 million. Corporation, an equity method investee preferred stock was sold at par million. liability to increase by S3 million. of lease payments, S90 million. Annual lease payments of $15 million are paid at January 1sof each year starting in Year 2. 8. S150 million of bonds were retired at maturity Required: Use the EXCEL worksheet template provided. There are three tabs- 1. Direct Method Statement of Cash Flows (SCF) 2. Spreadsheet for preparing the SCFs. This is where you show your work 3. Cash flows from Operating Activities - CFOs Indirect Method A. In the tab labeled Direct Method SCFs, prepare a complete statement of cash flows for Ace Corporation using the direct method of reporting cash flows from operating activities for the year ended December 31, Year 2. Show your work in the second tab labeled Spreadsheet for SCFs. You can use either the spreadsheet method, t-account method, or a combination of both. Included are some t-accounts to help you. For both the direct and indirect method you will need to analyze the impact the Allowance for doubtful accounts has on accounts receivable and cash. (25 points) B. In the third tab, prepare the operating activities section only for the statement of cash flows for Ace Corporation using the indirect method for the year ended December 31, Year 2. (25 points)
