I have a cash flow assignment I am working on now that I need help with.

Please see attached documents: Only 4 questions total

Problem II: Statement of Cash Flows (45 points) The company represented in this problem has been a premiere producer, marketer, and distributor of snack products in the Southeastern United States since the 1920's. The Company manufactures and distributes a full line of high quality salted snack items, such as potato chips, tortilla chips, corn chips, fried pork skins (seriously?????), baked and fried cheese curls, onion rings and popcorn. The Company also sells canned dips, pretzels, peanut butter crackers, cheese crackers, dried meat products, and nuts packaged by other manufacturers under the Company's label. This problem has 5 pages. This problem requires you to prepare a Statement of Cash Flows for the Company for the year ended May 31, 2013 (referred to below as fiscal year 2013). In preparing this statement, you should use only the information from the balance sheets provided on page 5 and the additional information included below. The comparative balance sheets as of May 31, 2013 and June 2, 2012 are also available in an Excel file posted to D2L. You should not try to identify the company and use information from actual 2013 financial reports. Many of the transactions have been modified and simplified for purposes of the problem and the Statement of Cash Flows that correctly reflects the information in the problem will not be consistent with the actual Statement of Cash Flows reported by the Company. I recommend that you create a \"system\" to assist you in constructing the Statement of Cash Flows. If you are comfortable with T-accounts, create T-accounts for all the accounts shown on the balance sheet and insert the beginning and ending balances. If you prefer a spreadsheet or some other form of tracking, that is fine also. Remember that you must consider the change in every balance sheet account and determine whether those changes impact the Statement of Cash Flows. You are welcome to submit your supporting documentation in addition to the Statement itself. This will allow me to track any errors and provide more detailed feedback. Read through all the additional information before attempting the problem. The items are not listed in any particular order. Latter items may provide clarification of earlier items. As with the assignments you submitted earlier in the term, do not obsess if you cannot get the Statement of Cash Flows to perfectly reconcile the change in the cash balance. There are many things that could cause this, some of which (e.g., transpositions or math errors) do not constitute major problems with your understanding of the topic. Additional Information: In addition to the balance sheet data, utilize the following information. Note that not all of the items listed below represent accounting transactions. Some of the items are purely informational. Also, note that there is not additional information provided for all accounts or transactions. Some items on the Statement of Cash Flows can be reconstructed given just the information in the balance sheets. 1 | P a g e 1. The Company has multiple balance sheet accounts that relate to borrowings: Current maturities of long-term debt, Line of credit outstanding and Long-term debt, net of current maturities. All cash flows associated with these borrowings should be reflected as financing activities in the Statement of Cash Flows. A line of credit is a loan made to a company by a financial institution. Lines of credit represent a source of cash that can be easily accessed by a company at the company's option. Interest rates on lines of credit are typically higher than the rates charged for longer-term borrowings. The Company in this problem has a line of credit agreement with a bank that permits it to borrow up to $3 million. Only the amount actually borrowed appears on the balance sheet. The line of credit is subject to the Company's continued credit worthiness and compliance with the terms and conditions of the loan agreement. Early in fiscal 2013, the company paid off $958,378 of the $1,293,698 beginning balance in the line of credit. Very near the end of the fiscal year, the company again borrowed against the line of credit to meet short-term operating needs. The repayment of $958,378 and the subsequent borrowing should be treated as independent transactions and should not be net against each other. 2. During 2013, the Company purchased assets classified as Property and equipment. The terms of the purchase contract required the Company to make an initial cash down payment of $300,000 at the time it took possession of the property in 2013. In addition, the Company signed a debt agreement with the seller of the property. The total amount of the debt (excluding interest) was $1,500,000, with the first payment due in 2015. The debt is classified as Longterm Debt. This represents the only new Long-term Debt issued in 2013. 3. In addition to the property acquisition referenced in #2 above, the Company acquired additional Property and equipment in exchange for cash in the amount of $2,750,000. 4. Depreciation expense for fiscal 2013 was $3,138,740. 5. The Company owned some assets classified as Property and equipment that experienced an unexpected decrease in value. This type of event (which we will study in more detail in Chapter 8 and which is also discussed in Problem I of the midterm) required the company to record the following journal entry during fiscal 2013. Impairment loss 400,000 Accumulated depreciation 400,000 6. During 2013, the Company sold property for $451,400 in cash. 2 | P a g e 7. The Company did not repay any debt that was classified as long-term during 2013. However, it did reclassify debt from Long-term debt to Current maturities of long-term debt. The reduction in Current maturities of long-term debt is the result of repayment of outstanding debt. 8. No sales of securities classified as Long-term Investment in marketable securities took place in fiscal 2013. Any purchase of such securities was in exchange for cash. 9. Unlike the company depicted in Problem I of the midterm, the Company does not maintain a separate Accumulated Amortization contra account related to intangible assets. Rather, the company credits the Intangible Assets, net account for the amortization of intangibles. No assets classified as Intangible Assets were purchased or sold during fiscal 2013. 10. Assume the change in the Salary Continuation Plan account is a Financing transaction that requires the use of cash. 11. Companies repurchase shares of their own stock for a variety of different reasons. In some states, when shares are repurchased they are recorded at cost in the Treasury Stock account. A company may resell those shares at future points in time. Any shares of stock repurchased were repurchased in exchange for cash. 12. The Company declared and paid $1,467,879 in dividends during fiscal 2013. 13. The nature of activity in some accounts is not clear from the information provided in the problem. Specifically, the change in the Deferred income tax asset account and the Deferred income tax account classified as a liability should be treated as operating adjustments. We will cover the reasons for this treatment later in the term. Required: 1) Prepare the Statement of Cash Flows for the year ended May 31, 2013. Your statement should be prepared using the indirect method and in proper format, as it would appear in the company's annual report. If you need an example of proper format, refer to the Nike annual report available in D2L or the statement of any publicly traded company that adheres to U.S. GAAP and uses the indirect format. Also, if you are struggling with this problem, specifically the operating section, refer back to the document in Week 4 of D2L entitled Conversion of Net Income to Cash Flow from Operating Activities, which shows common adjustments necessary to adjust net income to cash from operating activities. 3 | P a g e 2) As part of the accounting guidance related to the Statement of Cash Flows, U.S. GAAP requires that significant noncash investing and financing activities be disclosed in a supplemental schedule. Identify any such activities for this company and prepare a schedule explaining those activities. There is no specified format for this schedule. 3) Does depreciation expense as reported for financial reporting purposes generate cash for the Company? An answer of \"yes\" or \"no\" is not sufficient. You must defend your response to this question. 4) The Prepaid expenses & other account for the Company includes prepayments for insurance, licenses, dues, supplies, etc. Why does the Statement of Cash Flows require an adjustment in the operating section for changes in Prepaid expenses & other? 4 | P a g e CONSOLIDATED BALANCE SHEETS May 31, 2013 June 2, 2012 ASSETS Current Assets Cash and cash equivalents........................... $ 757,111 Trade account receivables........................... 10,459,706 Merchandise inventories............................. 4,955,813 Prepaid expenses & other current assets.......... 1,554,737 Refundable income taxes............................ Deferred income tax assets.......................... 596,267 Total current assets........................... 18,323,634 $ 1,893,816 10,566,073 5,156,798 1,754,874 59,894 615,182 20,046,637 Property and equipment, gross............................ 93,022,443 Less: Accumulated depreciation....................... 65,927,389 Net property and equipment.................... 27,095,054 Intangible assets, net......................................... 695,761 Long-term investment in marketable securities......... 1,642,030 Total assets $ 47,756,479 89,285,723 62,788,133 26,497,590 758,667 1,450,732 $48,753,626 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt............... $1,835,765 Accounts payable..................................... 4,809,066 Line of credit outstanding........................... 1,725,289 Accrued income tax.................................. 53,475 Other accrued expenses.............................. 5,623,666 Total current liabilities 14,047,261 Long-term debt, net of current maturities................. 5,314,213 Salary continuation plan................................. 1,032,810 Deferred income taxes................................... 3,304,451 Total liabilities................................. 23,698,735 STOCKHOLDERS' EQUITY Common stock $.66 par value; 35,000,000 shares authorized; issued 13,838,703 shares at May 31, 2013 and June 2, 2012.............................. 9,219,195 Additional paid-in capital.............................. 6,497,954 Retained earnings....................................... 19,273,214 Treasury Stock at cost, 22,096,161 shares at May 31, 2013 and 2,094,151 shares at June 2, 2012...(10,932,619) Total stockholders' equity..................... 24,057,744 Total liabilities and stockholders' equity $47,756,479 $ 2,068,338 6,025,465 1,293,698 4,653,657 14,041,158 5,707,062 1,097,655 3,509,305 24,355,180 9,219,195 6,497,954 19,607,056 (10,925,759) 24,398,446 $48,753,626 CONSOLIDATED BALANCE SHEETS May 31, 2013 June 2, 2012 Cash and cash equivalents $757,111 $1,893,816 Trade accounts receivable ASSETS Current assets: 10,459,706 10,566,073 Merchandise inventories 4,955,813 5,156,798 Prepaid expenses & other current assets 1,554,737 1,754,874 59,894 Refundable income taxes Deferred income tax assets 596,267 615,182 Total current assets 18,323,634 20,046,637 Property and equipment, gross 93,022,443 89,285,723 Less: Accumulated depreciation 65,927,389 62,788,133 Net property and equipment 27,095,054 26,497,590 695,761 758,667 1,642,030 1,450,732 $47,756,479 $48,753,626 $1,835,765 $2,068,338 Intangible assets, net Long-term investments in marketable securities Total assets LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Current maturities of long-term debt Accounts payable 4,809,066 6,025,465 Line of credit outstanding 1,725,289 1,293,698 53,475 Other accrued expenses Total current liabilities 5,623,666 Accrued income tax 4,653,657 14,047,261 14,041,158 Long-term debt, net of current maturities 5,314,213 5,707,062 Salary continuation plan 1,032,810 1,097,655 Deferred income taxes 3,304,451 3,509,305 23,698,735 24,355,180 9,219,195 9,219,195 Total liabilities Stockholders equity: Common stock, $.66 par value, 35,000,000 shares authorized; issued 13,828,703 shares at May 31, 2013 and June 1, 2012 Additional paid-in capital 6,497,954 6,497,954 19,273,214 19,607,056 (10,932,619) (10,925,759) 24,057,744 Retained earnings 24,398,446 Less: Treasury stock at cost, 22,096,161 shares at May 31, 2013 and 2,094,161 shares at June 2, 2012 Total stockholders equity Total liabilities and stockholders equity $ 47,756,479 $ 48,753,626 CONSOLIDATED BALANCE SHEETS May 31, 2013 June 2, 2012 Cash and cash equivalents $757,111 $1,893,816 Trade accounts receivable 10,459,706 10,566,073 Merchandise inventories 4,955,813 5,156,798 Prepaid expenses & other current assets 1,554,737 1,754,874 ASSETS Current assets: 59,894 596,267 615,182 Total current assets 18,323,634 20,046,637 Property and equipment, gross 93,022,443 89,285,723 Less: Accumulated depreciation 65,927,389 62,788,133 Net property and equipment 27,095,054 26,497,590 695,761 758,667 1,642,030 1,450,732 $47,756,479 $48,753,626 $1,835,765 $2,068,338 Refundable income taxes Deferred income tax assets Intangible assets, net Long-term investments in marketable securities Total assets LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Current maturities of long-term debt Accounts payable 4,809,066 6,025,465 Line of credit outstanding 1,725,289 1,293,698 Accrued income tax 53,475 Other accrued expenses 5,623,666 Total current liabilities 4,653,657 14,047,261 14,041,158 Long-term debt, net of current maturities 5,314,213 5,707,062 Salary continuation plan 1,032,810 1,097,655 Deferred income taxes 3,304,451 3,509,305 23,698,735 24,355,180 9,219,195 9,219,195 Total liabilities Stockholders equity: Common stock, $.66 par value, 35,000,000 shares authorized; issued 13,828,703 shares at May 31, 2013 and June 1, 2012 Additional paid-in capital 6,497,954 6,497,954 19,273,214 19,607,056 (10,932,619) (10,925,759) 24,057,744 Retained earnings 24,398,446 Less: Treasury stock at cost, 22,096,161 shares at May 31, 2013 and 2,094,161 shares at June 2, 2012 Total stockholders equity Total liabilities and stockholders equity $ 47,756,479 $ 48,753,626