Hi,

I attached my case study. I've done some parts, but need complete highlighted parts on this assignment. Any help appreciated. Thank you!

Page: 1472 P23-7 (SCFDirect and Indirect Methods from Comparative Financial Statements) Chapman Company a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2014, are as follows. The company is preparing its statement of cash flows. CHAPMAN COMPANY CHAPMAN COMPANY COMPARATIVE BALANCE SHEET AS OF MAY 31 2014 Current assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Plant assets Plant assets Less: Accumulated depreciation-plant assets Net plant assets $28,250 75,000 220,000 9,000 $332,250 INCOME STATEMENT FOR THE YEAR ENDED MAY 31, 2014 2015 $20,000 58,000 250,000 7,000 $335,000 600,000 502,000 150,000 450,000 - 125,000 377,000 Total assets $782,250 $712,000 Current liabilities Accounts payable Salaries and wages payable Interest payable Total current liabilities $123,000 47,250 27,000 $197,250 $115,000 72,000 25,000 $212,000 Long-term debt Bonds payable Total liabilities Stockholders' equity Common stock, $10 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 70,000 $267,250 370,000 145,000 515,000 $782,250 100,000 $312,000 280,000 120,000 400,000 Sales revenue Cost of goods sold Gross profit Expenses Salaries and wages expense Interest expense $1,255,250 722,000 $533,250 252,100 75,000 Depreciation expense Other expenses Total expenses Operating income Income tax expenses 25,000 8,150 360,250 $173,000 43,000 Net Income $130,000 The following is additional information concerning Chapmen's transactions during the year ended May 31, 2014 1. All sales during the year were made on account. 2. All merchandise was purchased on account, comprising the total accounts payable account. 3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock. 4. The "other expenses" are related to prepaid items. 5. All income taxes incurred during the year were paid during the year. 6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value. 7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year. Instructions a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities. b. Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2014, using the direct method. Be sure to support the statement with appropriate calculations. (A reconcilition of net income to net cash provided is not requiride.) c. Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2014. ANSWER a) Both the direct method and the indirect method for reporting cash flows from operating activities are acceptable in preparing a statement of cash flows according to GAAP; however, the FASB encourages the use of the direct method. Under the direct method, the statement of cash flows reports the major classes of cash receipts and cash disbursements, and discloses more information; this may be the statement's principal advantage. Under the indirect method, net income on the accrual basis is adjusted to the cash basis by adding or deducting noncash items included in net income, thereby providing a useful link between the statement of cash flows and the income statement and balance sheet. b) The Statement of Cash Flows for Chapman Company, for the year ended May 31, 2014, using the direct method, is presented below. $712,000 Noncash investing and financing activities: Issuance of common stock for plant assets $70,000. CHAPMAN COMPANY Statement of Cash Flows For the Year Ended May 31, 2014 Cash flows from operating activities Cash received from customers Cash payments: To suppliers To employees For other expenses For interest For income taxes Net cash provided by operating activities Cash flows from investing activities Purchase of plant assets Cash flows from financing activities Cash received from common stock issue Cash paid: For dividends To retire bonds payable Net cash used by financing activities $1,238,250 $684,000 276,850 10,150 73,000 43,000 1,087,000 $151,250 (28,000) $20,000 Cash paid to suppliers Cost of merchandise sold Less: Decrease in inventory Increase in accountns payable Cash paid to suppliers Cash paid to employees Salaries and wages expense Add: Decrease in salaries and wages payable Cash paid to employees (105,000) (30,000) Net increase in cash Cash, June 1, 2013 Cash, May 31, 2014 Supporting Calculations: Cash collected from customers Sales revenue Less: Increase in accounts receivable Cash collected from customers (115,000) 8,250 20,000 $28,250 Cash paid for other expenses Other expenses Add: Increase in prepaid expenses Cash paid for other expenses Cash paid for interest Interest expense Less: Increase in interest payable Cash paid for interest Cash paid for income taxes: Income tax expense (given) c) The calculation of the cash flow from operating activities for Chapman Company, for the year ended May 31, 2014, using the indirect method, is presented below. CHAPMAN COMPANY CHAPMAN COMPANY Statement of Cash Flows For the Year Ended May 31, 2014 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense Decrease in inventory Increase in accounts payable Increase in interest payable Increase in accounts receivable Increase in prepaid expenses Decrease in salaries and wages payable Net cash provided by operating activities $130,000 $25,000 30,000 8,000 2,000 (17,000) (2,000) (24,750) 21,250 $151,250 CASE STUDY You are the Corporate Controller for Chapman Company, a major retailer of bicycles and accessories. In 2013, the business suffered a dramatic decline in revenues as a result of the economic downturn and the lingering effects of the \"credit crunch.\" Due to the threats regarding a downgrade in rating, the business was forced to renegotiate their bond terms on two separate occasions: once in August 2013 and another in February 2014. Customer orders stabilized in Q414 which saw a small increase in revenue gains versus Q313. Because of this, and the fact that their largest customer placed a volume order in December, the CEO feels that the business has finally stabilized after a tumultuous and gut-wrenching year. Because of the amount of unique business decisions required to weather the storm, and the fact that the business had to renegotiate its bond terms twice during the year, the CEO has asked you to devote 100% of your time in June and July of 2014 making sure that the May 31, 2014 financial statements and accounting transactions are appropriately stated and backed by appropriate accounting. This comprehensive case problem will require you to utilize the skills learned and to apply professional judgment to various situations you will encounter throughout your professional career. Requirements: 1. The Accounting Manager just recently completed closing May 31, 2014 on a draft basis. You have just received the balance sheet and income statement found in P23-7 (page 1472). Prepare a statement of cash flows using the indirect method and using the worksheet under the \"cash flow statement\" tab using the data provided in the problem, items 1 to 7. This will be BEFORE you find the errors documented in part 4 below. 2. The CFO has been getting a lot of questions from the company's lenders in regards to its ability to meet its working capital requirements in the coming year and ability to pay off the bonds in two years. Based on what you know about the company from the balance sheet, prepare a memorandum to the CFO in regards to the major cash inflows and outflows. (NOTE: Please stretch your thinking beyond the obvious: instead of writing \"A/R decreased by $x.xM representing a cash inflow,\" say \"Due to the severe economic downturn, credit sales to customers decreased from the year prior\"). 3. With the following additional facts, and using the income statement and balance sheet, generate the deferred tax journal entries along with your calculation of the taxable income: a. The fixed asset generated depreciation expense of $15,500 vs. the book depreciation expense of $25,000. b. What should be disclosed in the audited financial statements? 4. During the financial statement closing process for May 31, 2014, you have noticed several errors that occurred during the prior year ending May 31, 2013 as a result of a change in leadership at the CFO position. The ending inventory balance was overstated by $7,500, reflecting work-in-process inventory that had labor and overhead charged to the manufactured process inappropriately due to employees charging small quantities to work orders that were not picked up in the annual physical inventory. a. Prepare the journal entries to record this change. b. Prepare the revised balance sheet, income statement, statement of retained earnings and statement of cash flows (indirect) for May 31, 2014. 00. 5. The new CFO has asked you to prepare a memorandum describing the effects of the error and the proper presentation in the financial statements. This memorandum will be shown to the investors, so it is important to be articulate and clearly written. Please refer to the Writing Rubric. $1,255,250 17,000 $1,238,250 $722,000 30,000 8,000 $684,000 $252,100 24,750 $276,850 $8,150 2,000 $10,150 $75,000 2,000 $73,000 $43,000 I need help for this Case Study