INDIRECT METHOD

Suppose 80% of the sales in 2011 are sales on account, whats the cash collection from customers during 2011? If you do not know the portion of sales on account, can you still calculate the cash collection from customers during 2011 (Yes or No will be sufficient)? Suppose 90% of the inventories purchased in 2011 are on account, whats the cash payment to suppliers during 2011? (Hint: Drawing T-accounts of A/R, inventory, and A/P)

Please give full written explanation along with T-accounts.

PART A. Below are the balance sheet and income statement for Leonard Company Assets en Cash and cash equivalents Accounts Receivable, net Inventory S52,000 168,000 $63,000 157,000 Total Current Assets Land Property & Equipment - at cost 432,000 97,000 300,000 434,000 107,000 333,000 Less Accumulated depreciation Net Property & Equipment Total Assets 130,000 $659,000 151,000 $692,000 Liabilities and Equity Liabilitie Accounts payable - trade Interest Payable Total Current Liabilities $78,000 8,000 86,000 $83,000 7,000 90,000 Note Payable Common Stock Retained Earnings 100,000 350,000 123,000 80,000 375,000 147,000 Total Liabilities and Stockholders' Equity For vear ended December 31. 2011 Revenues Expenses S659,000 S692,000 $800,000 Cost of Goods Sold Wages and Salaries Expense Depreciation Expense Interest Expense Income Tax Expense 451,800 200,000 48,000 7,200 25,000 Total Plus: Gain on Sale of Equipment Net Income (732,000) 6,000 $74,000 Additional information: 1. During the year, Leonard sold for $20,000 equipment costing $50,000 with $36,000 in Accumulated Depreciation. Dividends were declared and paid to common stockholders during the year. No shares were repurchased during the year 2. 3. No new debt was issued and no land was sold during 2011. 4. All the transactions related to plant assets, investment, long-term debt, dividends, and common stock only involve cash. Page 1 of 2