please answer the following questions:

• E5-2
• E5-6
• E5-9
• E5-13
• E5-18
• P5-7

Exercises 259 Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow. B B BES-13 Ames Company reported 2014 net income of $151,000. During 2014, accounts receivable increased by $13,000 and accounts payable increased by $9,500. Depreciation expense was $44,000. Prepare the cash flows from operating activities section of the statement of cash flows. BES-14 Martinez Corporation engaged in the following cash transactions during 2014. $191,000 40,000 37,000 95,000 53,000 147,000 100,000 Sale of land and building Purchase of treasury stock Purchase of land Payment of cash dividend Purchase of equipment Issuance of common stock Retirement of bonds Compute the net cash provided (used) by investing activities. B BES-1S Use the information presented in BE5-14 for Martinez Corporation to compute the net cash used (provided) by financing activities. it BES-16 Using the information in BE5-14, determine Martinez's free cash flow, assuming that it reported net cash provided by operating activities of $400,000. Et D ES-1 (Balance Sheet Classifications) Presented below are a number of balance sheet accounts of Deep Blue Something, Inc. (a) Investment in Preferred Stock. (b) Treasury Stock. (c) Common Stock. (d) Dividends Payable. (e) Accumulated Depreciation-Equipment. () Construction in Process. (g) Petty Cash. (h) Interest Payable. (i) Deficit. (j) Equity Investments (trading). (k) Income Taxes Payable. (l) Unearned Subscriptions Revenue. (m) Work in Process. (n) Salaries and Wages Payable. Instructions For each of the accOLmts above, indicate the proper balance sheet classification. In the case of borderline ~1dicate the additional information that would be required to determine the proper classification. 9 D ~ assification of Balance Sheet Accounts) Presented below are the captions of Faulk Company's balance sheet. (a) (b) (c) (d) (e) Current assets. Investments. Property, plant, and equipment. Intangible assets. Other assets. (0 Current liabilities. (g) Noncurrent liabilities. (h) Capital stock. (i) Additional paid-in capital. (j) Retained earnings. Instructions Indicate by letter where each of the following items would be classified. 1. Preferred stock. 2. 3. 4. S. 6. 7. 8. 9. 10. Goodwill. Salaries and wages payable. Accounts payable. Buildings. Equity investments (trading). Current maturity of long-term debt. Premium on bonds payable. Allowance for doubtful accounts. Accounts receivable. 11. 12. 13. 14. IS. 16. 17. 18. 19. 20. Cash surrender value of life insurance. Notes payable (due next year). Supplies. Common stock. Land. Bond sinking fund. Inventory. Prepaid insurance. Bonds payable. Income taxes payable. Exercises 261 Intangible assets Goodwill Cash surrender value of life insurance Prepaid expenses Current liabilities Accounts payable Notes payable (due next year) Pension obligation Rent payable Premium on bonds payable Long-term liabilities Bonds payable Stockholders' equity Common stock, $1.00 par, authorized 400,000 shares, issued 290,000 Additional paid-in capital Retained earnings 80,000 90,000 12,000 135,000 125,000 82,000 49,000 53,000 500,000 290,000 160,000 ? Instructions Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the equipment, $105,000. The allowance for doubtful accOLmts a balance of $17,000. The pension obligation is considered a long-term liability. B ~ 5-6 ( o rrections of a Balance Sheet) The bookkeeper for Geronimo Company has prepared the following c ce sheet as ofJuly 31, 2014. GERONIMO COMPANY BALANCE SHEET As OF JULY 31, 2014 Cash Accounts receivable (net) Inventory Equipment (net) Patents $ 69,000 40,500 60,000 84,000 21,000 Notes and accounts payable Long-term liabilities Stockholders' equity $ 44,000 75,000 155,500 $274,500 $274,500 The following additional information is provided. 1. Cash includes $1,200 in a petty cash fund and $15,000 in a bond sinking fund. 2. The net accounts receivable balance is comprised of the following two items: (a) accounts receivable $44,000 and (b) allowance for doubtful accounts $3,500. 3. Inventory costing $5,300 was shipped out on consignment on July 31,2014. The ending inventory balance does not include the consigned goods. Receivables in the amount of $5,300 were recognized on these consigned goods. 4. Equipment had a cost of $112,000 and an accumulated depreciation balance of $28,000. 5. Income taxes payable of $6,000 were accrued on July 31. Geronimo Company, however, had set up a cash fund to meet this obligation. This cash fund was not included in the cash balance but was offset against the income taxes payable amount. Instructions Prepare a corrected classified balance sheet as of J ul Y31, 2014, from the available i.J.tiormation, adjusting the account balances using the additional information. D 5-7 (Current Assets Section of the Balance Sheet) Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014. Inventory (finished goods) Unearned Service Revenue Equipment Inventory (work in process) Cash Equity Investments (short-term) Customer Advances Restricted Cash for Plant Expansion $ 52,000 90,000 253,000 34,000 37,000 31,000 36,000 50,000 Cost of Goods Sold Notes Receivable Accounts Receivable Inventory (raw materials) Supplies Expense Allowance for Doubtful Accounts Licenses Additional Paid-in Capital Treasury Stock $2,100,000 40,000 161,000 207,000 60,000 12,000 18,000 88,000 22,000 262 Chapter 5 Balance Sheet and Statement of Cash Flows The following additional information is available. 1. Inventories are valued at lower-of-cost-or-market using LIFO. 2. Equipment is recorded at cost. Accumula ted depreciation, compu ted on a straight-line basis, is $50,600. 3. The short-term investments have a fair value of $29,000. (Assume they are tradi.ng securities.) 4. The notes receivable are due April 30, 2016, w ith interest receivable every April 30. The notes bear interest at 6%. (Hin t: Accrued interest due on December 31, 2014.) 5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable of $50,000 are pledged as collateral on a bank loan. 6. Licenses are recorded net of accumulated amortization of $14,000. 7. Treasury stock is recorded at cost. Instructions Prepare the current assets section of Yasunari Kawabata Company's December 31, 2014, balance sheet, with appropriate disclosures. 9 E5-8 (Current vs. long-term liabilities) Frederic Chopin Corporation is preparing its December 31, 2014, balance sheet. The following items may be reported as either a current or long-term liability. 1. On December 15,2014, Chopin declared a cash dividend of $2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2015. Chopin has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury. 2. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $25,000,000 every September 30, beginning September 30, 2015. 3. At December 31, 2013, customer advances were $12,000,000. During 2014, Chopin collected $30,000,000 of customer advances; advances of $25,000,000 should be recogni zed in income. Instructions For each item above, indicate the dollar amounts to be rep orted as a current liability and as a long-term liability, if any. 9 D ~urrent Assets and Current liabilities) The current assets and current liabilities secti ons of the ~; sheet of Allessandro Scarlatti Company appear as follo ws. ALLESSANDRO SCARLATTI COMPANY BALANCE SHEET (PARTIAL) DECEMBER 31,2014 Cash Accounts receivable Less: Allowance for doubtful accounts Inventory Prepaid expenses $ 40,000 $89,000 Accounts payable Notes payable $ 6-1,000 67,000 $128,000 7,000 82 ,000 171,000 9,000 $302,000 The following errors in the corporation's accounting have been discovered: 1. January 2015 cash disbursements entered as of December 2014 included payments of accounts payable in the amount of $39,000, on which a cash discount of 2% was taken. 2. The in ven tory included $27, 000 of merchandise that had been received at December 31 but for w hich no purchase invoices had been received or entered. Of this amount, $12,000 had been recei ved on consignment; the remainder was purchased f.o.b. destination, terms 2/ 10, n / 30 3. Sales for the first four days in January 2015 in the amount of $30,000 were entered in the sales journal as of December 31, 2014. Of these, $21,500 were sales on account and the remai nder were cash sales. 264 Chapter 5 Balance Sheet and Statement of Cash Flows D E5-12 (Preparation of a Balance Sheet) Presented below is the trial balance of Scott Butler Corporation a t December 31, 2014. Debit Cash Sales Revenue Debt Investments (trading) (at cost, $145 ,000) Cos t of Goods Sold Debt Investments (long-term) Equity Investments (long-term) Notes Payable (Short- term) Accounts Payable Selling Expen ses Investment Revenue Land Buildings Di vidends Payable Accrued Liabilities Accounts Receivable Accumulated Depreciation - Buildings Allowance for Doubtful Accounts Administrative Expenses Interest Expense Inventory Gain (extraordinary) Notes Payable (long- term) Equipment Bonds Payable Acc umulated Depreciation-Equipment Fran chises Common Stock ($5 par) Treasury Stock Patents Retained Earning s Paid-in Capital in Excess of Par Totals $ Credit 197 ,000 $ 8,10 0,000 153,000 4,800,000 299,000 277,000 90,000 455,000 2,000,000 63,000 260,000 1,040,000 136,000 96,000 435,000 152,000 25,000 900,000 211,000 597 ,000 80,000 900,000 600,000 1,000,000 60,000 160,000 1,000,000 191,000 195,000 78,000 80,000 $12,315,000 $12,315,000 Instructions Prepare a balance sheet at December 31,2014, for Scott Butler Corporation. (Ignore income taxes.) ~tatement of Cash Flows-Classifications) The major classifications of activities reported in the ~~t of cash flows are operating, investing, and financing. Cla ssify each of the transactions listed below as: 1. Operating activity-add to net income. 2. 3. 4. 5. Operating activity-deduct from net income. Investing activity. Financing activity. Reported as significant noncash activity. The transactions are as foll ows. (a) Issuance of common stock. (b) Purchase of land and building. (c) Redemption of bonds. (d) Sale of equipment. (e) Depreciation of machinery. () Amortization of patent. (g) Issuance of bonds for plant assets. [t (h) Payment of cash dividends. (i) Exchange of furniture for office equipment. (j) Purchase of treasury stock. (k) Loss on sale of equipment. (l) Increase in accounts receivable during the yea r. (m) Decrease in accou nts payable during the year. E5-14 (Preparation of a Statement of Cash Flows) The comparative balance sheets of Constantine Cavamanlis Inc. at the beginning and the end of the year 2014 are as follows. 266 Chapter 5 Balance Sheet and Statement of Cash Flows Additional information: 1. Net in come for 2014 was $125,000. No gains or losses were recorded in 2014. 2. Cash dividends of $60,000 were declared and paid. 3. Bonds payable amo unting to $50,000 were retired through issuance of common stock. Instructions (a) Prepare a statement of cash flows for 2014 for Shabbona Corporation. (b) Determine Shabbona Corporation's cu rrent cash debt coverage, cash debt coverage, and free cash flow. Comment on its liquidity and financial fle xibility. D D ES-17 (Preparation of a Statement of Cash Flows and a Balance Sheet) Grant Wood Corporation's bal ance sheet at the end of 2013 included the following items. Current assets Land Buildings Equipment Accum. depr.-buildings Accum. depr. -equipment Patents Total $235,000 30,00 0 120,000 90,000 (30 ,000) (11 ,000) 40,000 Curren t liabilities Bonds payable Common stock Retained earnings $150,000 100,000 180,000 44 ,000 Total $474 ,000 $474,000 The follo wing information is available for 2014. 1. Net income was $55,000. 2. Equipment (cost $20,000 and accumulated depreciation $8,000) was sold for $10,000. 3. Depreciation expense was $4,000 on the building and $9,000 on equipment. 4. Patent amortization was $2,500. 5. Current assets other than cash increased by $29,000. Current liabilities increased by $13,000. 6. An addition to the building was completed at a cost of $27,000. 7. A long-term investment in stock was purchased for $16,000. 8. Bonds payable of $50,000 were issued. 9. Cash dividends of $30,000 were declared and paid. 10. Treasury stock was purchased at a cost of $11,000. Instructions (Show only totals for current assets and current liabilities.) (a) Prepare a statement of cash flow s for 2014. prepare a balance sheet at December 31, 2014. D ~ E5-1 (Preparation of a Statement of Cash Flows, Analysis) The compara tive balance sheets of Madrasah rporation at the begiluling and end of the year 2014 appear below. MADRASAH CORPORATION BALANCE SHEETS Assets Cash Accounts receivable Equipment Less: Accumulated depreciation-equipment Total Dec.31,2 014 Jan . 1,20 14 $ 20,000 106,000 39,000 17,000 $ 13,000 88,000 22, 000 11,000 $148,000 $112,000 $ 20 ,000 100,000 28 ,000 $ 15,000 80,000 17,000 $148,000 $112,000 Inc'/Dec. $ 7,000 18,000 17,000 6,000 Inc. Inc. Inc. Inc. Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total 5,000 Inc. 20,000 Inc. 11,000 Inc. Net income of $44,000 was reported, and dividends of $33,000 were paid in 2014. New equ ipment was purchased and none was so ld . Instructions (a) Prepare a statement of cash flow s for the year 2014. Problems 267 (b) Compute the current ratio (current assets -:- current liabilities) as of January 1, 2014, and December 31,2014, and compute free cash flow for the year 2014. (c) In light of the analysis in (b), comment on Madrasah's liquidity and financial flexibili ty. See the book's companion website, at www.wiley.com/college/kieso. for an additional set of exercises. E) P5-1 (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order. Accounts Receivable Accumulated Depreciation -Buildings Accumulated Depreciation - Equipment Accumulated Other Comprehensive Income Advances to Employees . Advertising Expense Allowance for Doubtful Accounts Bond Sinking Fund Bonds Payab le Buildings Cash (in bank) Cash (on hand) Cash Surrender Value of Life Insurance Commission Expense Common Stock Copyrights Debt Investments (trading) Dividends Payable Equipment Freight-In Gain on Disposal of Equipment Interest Receivable Inventory - Beginning Inventory- Ending Land Land for Future Plant Site Loss from Flood Noncontrolling Interest Notes Payable (due next year) Paid-in Capital in Excess of Par- Preferred Stock Patents Payroll Taxes Payable Pension Liability Petty Cash Preferred Stock Premium on Bonds Payable Prepaid Rent Purchase Returns and Allowances Purchases Retained Earnings Salaries and Wages Expense (sales) Salaries and Wages Payable Sales Discounts Sales Revenue Treasury Stock (at cost) Unearned Subscriptions Revenue Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.) D P5-2 (Balance Sheet Preparation) Presented bel ow are a number of balance sheet items for Montoya, Inc., for the current year, 2014. Goodwill Payroll taxes payable Bonds payable Discount on bonds payable Cash Land Notes receivable Notes payable (to banks) Accounts payable Retained earnings Income taxes receivable Notes payable (long-term) $ 125,000 177,59 1 300,000 15,000 360,000 480,000 445,700 265,000 490,000 ? 97 ,630 1,600,000 Accumulated depreciation-equipment Inventory Rent payable (short-term) Income taxes payable Rent payable (long-term) Common stock, $1 par value Preferred stock, $10 par value Prepaid expenses Equipment Equity invest ments (trading) Accumulated depreciation - buildings Buildings $ 292,000 239,800 45,000 98,362 480,000 200,000 150,000 87,920 1,470,000 121 ,000 270,200 1,640,000 Instructions Prepare a classified balance sheet in good form. Common stock au thorized was 400,000 shares, and pre ferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of equity investments (trading) are the same. E) P5-3 (Balance Sheet Adjustment and Preparation) The ad justed trial balance of Eastwood Company and other related information for the year 2014 are presented as follows. 270 Chapter 5 Balance Sheet and Statement of Cash Flows D [t it P5-6 (Preparation of a Statement of Cash Flows and a Balance Sheet) Lansbury Inc. had the following balance shee t at December 31, 2013. LANSBURY INC. BALANCE SHEET DECEMBER 31, 2013 Cash Accounts receivable Investments Plant assets (net) Land Accounts payable Notes payable (long-term) Common stock Retained earnings $ 20,000 21,200 32,000 81,000 40,000 $ 30,000 41,000 100.000 23,200 $194,200 $194,200 During 2014, the following occurred. 1. Lansbury Inc. sold part of its investment portfolio for $15,000. This transaction resulted in a gain of $3,400 for the firm. The company classifies its inveshllents as available-far-sale. 2. A tract of land was purchased for $18,000 cash. 3. Long-term notes payable in the amount of $16,000 were retired before maturity by paying $16,000 cash. 4. An additional $20,000 in common stock was issued at par. 5. Dividends of $8,200 were declared and paid to stockholders. 6. Net i.ncome for 2014 was $32,000 after allowing for deprec iation of $11 ,000. 7. Land was purchased through the issuance of $30,000 in bonds. 8. At December 31, 2014, Cash was $32,000, Accounts Receivable was $41,600, and Accounts Payable remained at $30,000. Instructions (a) Prepare a sta temen t of cash flows for 2014. (b) Prepare an unclassified balance sheet as it would appear at December 31, 2014. (c) How might the statement of cash flows help the user of the financial statements? Compute two cash flow ra tios. o ~(preparation of a Statement of Cash Flows and Balance Sheet) Aero Inc. had the following balance [t ~eet at December 31, 2013. AERO INC. BALANCE SHEET DECEMBER 31, 2013 Cash Accounts receivab le Investme nts Plant assets (net) Land $ 20,000 21.200 32,000 81,000 40,000 Accounts payable Bonds payable Common stock Retained earnings $ 30,000 41,000 100,000 23 ,200 $194,200 $194.200 During 2014, the following occurred. 1. Aero liquidated its available-far-sale investment portfolio at a loss of $5,000. 2. A tract of land was purchased for $38,000. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $10,000 were declared and paid to stockholders. 5. Net income for 2014 was $35,000, including $12,000 in depreciation expense. 6. Land was purchased through the issuance of $30,000 in additional bonds. 7. At December 31, 2014, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000. Instructions (a) Prepare a statement of cash flows for the year 2014 for Aero. (b) Prepare the unclassified balance sheet as it would appear at December 31, 2014. (c) Compute Aero's free cash flow and current cash debt coverage for 2014. (d) Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements