Problem #1 Classifications of Cash Flows Assuming a statement of cash flows is prepared, indicate the reporting of the transactions and events listed below by major categories on the statement. Use the following code letters to indicate the appropriate category under which the item would appear on the statement of cash flows. Code Cash Flows From Operating Activities Add to Net Income NCO-Add Deduct from Net Income NCO-Ded Cash Flows From Investing Activities Cash Flows From Financing Activities F Category Common stock is issued for cash at an amount above par value. Merchandise inventory increased during the period. Depreciation expense recorded for the period. Building was purchased for cash. Bonds payable were acquired and retired at their carrying value. Accounts payable decreased during the period. Prepaid expenses decreased during the period. Treasury stock was acquired for cash. Land is sold for cash at an amount equal to book value. Patent amortization expense recorded for a period. Problem #2 Prepare a Statement of Cash Flows A comparative balance sheet for Rocker Company appears below: ROCKER COMPANY Comparative Balance Sheet Dec 31, 2020 Dec 31, 2019 Assets Cash Accounts receivable Inventory Prepaid expenses Long-term investments Equipment Accumulated depreciation equipment Total assets $ 33,000 18.000 25,000 6,000 $10,000 14,000 18.000 9,000 18,000 32,000 (14.000) $87.000 60,000 (20.000) S122.000 Liabilities and Stockholders' Equity Accounts payable Bonds payable Common stock $ 17,000 37,000 40,000 $ 7,000 47,000 23,000 Retained earnings 28.0.0.0 10.000 Total liabilities and stockholders' equity $122.000 $87.000 Additional information: Net income for the year ending December 31, 2020 was $33,000. Cash dividends of $15,000 were declared and paid during the year. Long-term investments that had a cost of $18,000 were sold for $14,000. Sales for 2020 were $120,000. 4. Instructions Prepare a statement of cash flows for the year ended December 31, 2020, using the indirect method. Problem 3 Financial Statement Analysis The financial statements of Gaines Company appear below: GAINES COMPANY Comparative Balance Sheet December 31, Assets 2020 2019 Cash $ 25,000 $ 40,000 60,000 Short-term investments 15,000 Accounts receivable (net) 50,000 30,000 Inventory 50,000 70,000 Property, plant and equipment (net) 260.000 300.000 Total assets $400.000 $500.000 Liabilities and stockholders' equity Accounts payable $ 20,000 $ 30,000 Short-term notes payable 30,000 90,000 Bonds payable 90,000 160,000 Common stock 150,000 150,000 Retained earnings 110.000 70.000 Total liabilities and stockholders' equity $400.000 $500.000 GAINES COMPANY Income Statement For the Year Ended December 31, 2020 Net sales $400,000 Cost of goods sold 240.000 Gross profit 160,000 Expenses Operating expenses $42,000 Interest expense 18.000 Total expenses 60.000 Income before income taxes 100,000 Income tax expense 30.000 Net income $ 70.000 Additional information: a. Cash dividends of $23,000 were declared and paid in 2020. b. Weighted average number of shares of common stock outstanding during 2020 was 30,000 shares. C. Market value of common stock on December 31, 2020, was $21 per share. Instructions Using the financial statements and additional information, compute the following ratios for Gaines Company for 2020. Show all computations. Computations (show formulas, calculation in steps, and the right format of each ratio) 1. Current ratio Return on common stockholders' equity Price-earnings ratio (optional) Receivables turnover Average Collection Period Inventory Turnover Days in Inventory Profit margin 8. Earnings per Share (EPS)
