Case 17-2

• Statement of Cash Flows for the year ended December 31, 2017
  • Prepare a statement of cash flows for Lucky Lady Inc. using the income statement for the year. ended December 31, 2017, as well as the balance sheets as of December 31, 2017 and December 31, 2016.
• Borrowing and Repayment
  • Show separately any borrowing or repayment as a financing inflow or outflow.
  • Explain the changes to each asset and each liability account that affected Lucky Ladys cash flows during 2017.

C17-2 Lucky Lady Inc.: Preparing comprehensive statement of cash flows (LO 17-1, LO 17-2, LO 17-3, LO 17-4) The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and Decembe 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has bee disguised. Income Statement (S in thousands) For the Year Ended December 31, 2017 $ 26,702 2.897 2,351 5,066 20,784 57,800 Revenues Casino Rooms Food and beverage Other hotel/casino Airline Total revenues Operating Expenses Casino Rooms Food and beverage Other hotel/casino Airline Selling, general, and administrative (including bad debt expense of $3,855) Depreciation expense Hotel preopening expenses Aircraft carrying value adjustment Total operating expenses Operating income Nonoperating items: Interest income Interest expense Other, net Income before taxes Provision for income taxes Net income (loss) 9,341 1,016 2,529 5,777 20,599 19,679 8,018 45,130 68,948 181,037 (123.237) 12,231 (6.596) 16 (117,586) $(117,586) C17-2 Lucky Lady Inc.: Preparing comprehensive statement of cash flows (LO 17-1, LO 17-2, LO 17-3, LO 17-4) The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016. for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised. Income Statement For the Year Ended December 31, 2017 $ 26,702 2.897 2,351 5.066 20,784 57,800 ($ in thousands) Revenues Casino Rooms Food and beverage Other hotel/casino Airline Total revenues Operating Expenses Casino Rooms Food and beverage Other hotel/casino Airline Selling, general, and administrative (including bad debt expense of $3,855) Depreciation expense Hotel preopening expenses Aircraft carrying value adjustment Total operating expenses Operating income Nonoperating items: Interest income Interest expense Other, net Income before taxes Provision for income taxes Net income (loss) 9,341 1,016 2,529 5.777 20,599 19.679 8.018 45,130 68.948 181,037 (123,237) 12.231 (6,596) 16 (117,586) $(117,586) Balance Sheets December 31, 2017 2016 $ 211,305 35,249 (4,733) 11.755 12.662 266,238 953,796 (86,512) (S in thousands) Assets Cash Gross accounts receivable Less: Allowance for doubtful accounts Prepaid expenses Inventories Total current assets Gross property, plant, and equipment Less: Accumulated depreciation Pre-opening expenses Other operating assets Total assets Liabilities and Stockholders' Equity Accounts payable Accrued salaries and wages Accrued interest on long-term debt Other accrued liabilities Construction payables Current maturities, capital leases Current maturities, long-term debt Total current liabilities $ 579,963 2.178 (1,531) 1,219 154 581,983 471,506 (21,796) 10,677 21.116 $1,063,486 26,601 $1,160,123 $ 14,181 8,194 9,472 33,502 96,844 1,830 1,573 165,596 $ 4,322 945 9,429 9.744 32,296 289 -0- 57,025 page 1055 December 31, ($ in thousands) 2017 2016 Deferred revenues 6,517 Deferred income taxes Long-term obligation, capital leases Long-term debt Total liabilities Common stock Capital in excess of par value Common stock in treasury Retained earnings (deficit) Total stockholders' equity Total liabilities and equity 10,784 6,517 14,044 481,427 678,368 506 662,365 (29,490) (151,626) 481,755 $1,160,123 162 473,000 536,704 485 589,827 (29,490) (34,040) 526,782 $1,063,486 Additional Information and Author Notes: Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as "extra" depreciation recorded during the year due to abnormal decline in the asset value.] Property, plant, and equipment: Includes land, buildings, aircraft equipment, furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. (Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.] Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.] Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility. Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017. Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel. Required: Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady's cash flows during 2017. page 1056 C17-2 Lucky Lady Inc.: Preparing comprehensive statement of cash flows (LO 17-1, LO 17-2, LO 17-3, LO 17-4) The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and Decembe 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has bee disguised. Income Statement (S in thousands) For the Year Ended December 31, 2017 $ 26,702 2.897 2,351 5,066 20,784 57,800 Revenues Casino Rooms Food and beverage Other hotel/casino Airline Total revenues Operating Expenses Casino Rooms Food and beverage Other hotel/casino Airline Selling, general, and administrative (including bad debt expense of $3,855) Depreciation expense Hotel preopening expenses Aircraft carrying value adjustment Total operating expenses Operating income Nonoperating items: Interest income Interest expense Other, net Income before taxes Provision for income taxes Net income (loss) 9,341 1,016 2,529 5,777 20,599 19,679 8,018 45,130 68,948 181,037 (123.237) 12,231 (6.596) 16 (117,586) $(117,586) C17-2 Lucky Lady Inc.: Preparing comprehensive statement of cash flows (LO 17-1, LO 17-2, LO 17-3, LO 17-4) The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016. for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised. Income Statement For the Year Ended December 31, 2017 $ 26,702 2.897 2,351 5.066 20,784 57,800 ($ in thousands) Revenues Casino Rooms Food and beverage Other hotel/casino Airline Total revenues Operating Expenses Casino Rooms Food and beverage Other hotel/casino Airline Selling, general, and administrative (including bad debt expense of $3,855) Depreciation expense Hotel preopening expenses Aircraft carrying value adjustment Total operating expenses Operating income Nonoperating items: Interest income Interest expense Other, net Income before taxes Provision for income taxes Net income (loss) 9,341 1,016 2,529 5.777 20,599 19.679 8.018 45,130 68.948 181,037 (123,237) 12.231 (6,596) 16 (117,586) $(117,586) Balance Sheets December 31, 2017 2016 $ 211,305 35,249 (4,733) 11.755 12.662 266,238 953,796 (86,512) (S in thousands) Assets Cash Gross accounts receivable Less: Allowance for doubtful accounts Prepaid expenses Inventories Total current assets Gross property, plant, and equipment Less: Accumulated depreciation Pre-opening expenses Other operating assets Total assets Liabilities and Stockholders' Equity Accounts payable Accrued salaries and wages Accrued interest on long-term debt Other accrued liabilities Construction payables Current maturities, capital leases Current maturities, long-term debt Total current liabilities $ 579,963 2.178 (1,531) 1,219 154 581,983 471,506 (21,796) 10,677 21.116 $1,063,486 26,601 $1,160,123 $ 14,181 8,194 9,472 33,502 96,844 1,830 1,573 165,596 $ 4,322 945 9,429 9.744 32,296 289 -0- 57,025 page 1055 December 31, ($ in thousands) 2017 2016 Deferred revenues 6,517 Deferred income taxes Long-term obligation, capital leases Long-term debt Total liabilities Common stock Capital in excess of par value Common stock in treasury Retained earnings (deficit) Total stockholders' equity Total liabilities and equity 10,784 6,517 14,044 481,427 678,368 506 662,365 (29,490) (151,626) 481,755 $1,160,123 162 473,000 536,704 485 589,827 (29,490) (34,040) 526,782 $1,063,486 Additional Information and Author Notes: Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as "extra" depreciation recorded during the year due to abnormal decline in the asset value.] Property, plant, and equipment: Includes land, buildings, aircraft equipment, furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. (Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.] Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.] Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility. Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017. Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel. Required: Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady's cash flows during 2017. page 1056