Problem 1 Discontinued Operations

	On September 1, 2015, KIWIs Furniture Mart enters into a tentative agreement to sell the assets of its office equipment division. This division comprises operations and cash flows that can be distinguished clearly, operationally and for financial reporting purposes. The division's contribution to Kiwi's operating income for 2015 was a $3 million loss before taxes. Kiwi has an effective tax rate of 30%. Required: Consider independently the appropriate accounting by Kiwi under the three scenarios below (12 points total).
	Scenario 1: Assume that Kiwi sold the division's assets on December 31, 2015, for $24 million. The book value of the division's assets was $19 million at that date. Under these assumptions, what would Kiwi report in its 2015 income statement regarding the office furniture division, explain where and how this information would be presented?
	Scenario 2: Assume that Kiwi had not yet sold the division's assets by the end of 2015. Further, assume that the fair value less costs to sell of the division's assets at 12/31/15 was $24 million and was expected to remain the same when the assets are sold in 2016. The book value of the division's assets was $19 million at that date. Under these assumptions, what would Kiwi report in its 2015 income statement regarding the office furniture division, explain where and how this information would be presented?
	Scenario 3: Assume that Kiwi had not yet sold the office furniture division by the end of 2015. Further, assume that the fair value less costs to sell of the division's assets at 12/31/15 was $12 million and was expected to remain the same when the assets are sold in 2016. The book value of the division's assets was $19 million at that date. Under these assumptions, what would Kiwi report in its 2015 income statement regarding the office furniture division, explain where and how this information would be presented?

Problem 2 Revenue Recognition

Maddison Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE uses the percentage-of-completion method of revenue recognition.

		Cost incurred		Estimated Cost to Complete
2015		$ 250,000		$ 1,550,000
2016		1,600,000		500,000
2017		450,000		0

In 2016, Maddison would report (rounded to the nearest thousand) gross profit (loss) of:

Problem 3 Ratio Analysis

The following information was taken from Moser & Companys 2015 annual report:

Net inventories reported on the balance sheet were $1,553 and 1,295 for years 2015 and 2014, respectively.

Replacement cost exceeded LIFO value by $978 and $1,054 for years 2015 and 2014, respectively.

Cost of goods sold for year 2015 was $8,936.1

The following information was extracted from BRAUNS Heavy Industries financial statements:

TIAPEI utilizes the FIFO cost flow assumption and its cost of goods sold for year 2015 was $5,266.5.

Inventory balances were $1,455 and 1,114 for years 2015 and 2014, respectively.

Required:

Calculate both firms inventory turnover ratio and indicate which one is better and why. Show all work. (NOT JUST MECHANICAL THINK BEFORE DOING ANY CALCULATIONS.)

Problem 4: Cash Flows

Problem A: Presented below are the balance sheets of Baylee Enterprises, Inc. as of September 30, 2015 and 2014 and the statement of income and retained earnings for the year ended September 30, 2015.

Baylee Enterprises, Inc.

Balance Sheets

September 30, 2015 and 2014

2015 2014

Assets:

Cash and cash equivalents $262,000 $180,000

Accounts receivable, net 295,000 305,000

Inventories 549,000 431,000

Long-term investment 73,000 60,000

Land 350,000 200,000

Plant and equipment 624,000 606,000

Less: Accumulated depreciation (139,000) (107,000)

Goodwill 16,000 20,000

Total assets $2,030,000 $1,695,000

Liabilities and Stockholders Equity

Accounts payable $504,000 $453,000

Accrued expenses 100,000 110,000

Note payable, long-term 150,000 -

Bonds payable 160,000 210,000

Deferred tax liability 41,000 30,000

Common stock, par value $10 430,000 400,000

Additional paid-in-capital 226,000 175,000

Retained earnings 419,000 334,000

Treasury stock, at cost - (17,000)

Total liabilities and stockholders equity $2,030,000 $1,695,000

Baylee Enterprises, Inc.
Statement of Income and Retained Earnings
For the Year Ended September 30, 2015
Net sales					$1,950,000
Operating expenses:
	Cost of goods sold		$1,150,000
	Selling and administrative expense		505,000
	Depreciation		53,000
	Impairment loss		4,000		1,712,000
Operating income					238,000
Other (income) expense:
	Interest expense		15,000
	Loss on sale of equipment		5,000		20,000
Income before income taxes					218,000
Income taxes:
	Current		79,000
	Deferred		11,000
	Income tax expense				90,000
Net income					128,000
Retained earnings at October 1, 2014					334,000
Cash dividends paid, August 24, 2015					(43,000)
Retained earnings at September 30, 2015					$419,000

Additional information:

On January 2, 2015, Baylee sold equipment costing $45,000, with a book value of $24,000, for $19,000 cash.

On April 1, 2015, Baylee issued 1,000 shares of common stock for $23,000 cash.

On May 15, 2015, Baylee sold all of its treasury stock for $25,000 cash.

On June 1, 2015, individuals holding $50,000 face value of Baylees bonds exercised their conversion privilege. Each of the 50 bonds was converted into 40 shares of Baylees common stock. No Cash was received or given by Baylee during the exchange.

On July 1, 2015, Baylee purchased equipment for $63,000 cash.

On August 31, 2015, land with a fair market value of $150,000 was purchased. Baylee borrowed the cash from the bank by signing a long-term note in the amount of $150,000. The note bears interest at the rate of 15% and is due on September 30, 2018.

During September 2015, Baylee purchased $13,000 of additional Alcoa stock, classified as a long-term, available-for-sale investment.

Deferred income taxes represent temporary differences relating to the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial statement reporting.

REQUIRED: Prepare Baylee Enterprises, Incs statement of cash flows (indirect approach) for the year ended September 30, 2015 (no supplementary disclosure is required).

Problem B: The following cash flow information pertains to the 2015 operations of Abbee Industries, a maker of ultralight aircraft.

Cash collections from customers	$ 16,670
Cash payments to suppliers	19,428
Cash payments for various operating expenses	7,148
Cash payments for current income taxes	200
Cash used by operating activities	10,106

The following additional information comes from Abbees income statement:

Net income	$ 609
Depreciation	2,256
Amortization of patents	399
Loss on sale of equipment	169

The following additional information comes from Abbees 2015 and 2014 comparative balance sheets (decreases are in parentheses):

Change in accounts receivable	$ 3,630
Change in inventory	3,250
Change in accounts payable	(3,998)
Change in accrued operating expenses	(2,788)
Change in taxes payable	127

REQUIRED:

Use the preceding information to derive Abbees 2015 multi-step income statement.

Problem C: Below is TOBY ALUMINUM CASTINGS COMPANYS September 30, 2015 Cash Flow Statement and Income Statement for the year ended September 30, 2015 and selected Balance Sheet information for the years ended September 30 2015 and 2014.

TOBY ALUMINUM CASTINGS COMPANY
2015 CASH FLOW STATEMENT (in millions)
Cash collected from customers				$135
Cash paid to suppliers for inventory				(40)
Cash paid for selling expenses				(28)
Cash paid for income taxes				(16)
Net cash flow from operating activities					$51
Cash received from sale of equipment				106
Net cash flow from investing activities					106
Cash received from issuance of stock				20
Cash paid in dividends				(6)
Net cash flow from financing activities					$14
TOBY ALUMINUM CASTINGS COMPANY
2015 INCOME STATEMENT (in millions)
Sales Revenue					$200
Cost of goods sold					(82)
Bad debt expense					(9)
Depreciation expense					(24)
Selling expense					(20)
Income before income taxes					65
Income taxes					(26)
Loss on sale of equipment (net of $3 tax benefit)					(7)
Net income					$32
TOBY ALUMINUM CASTINGS COMPANY
BALANCE SHEET (in millions)					9/30/15		9/30/14
Cash					?		$31
Accounts receivable					130		?
Less: Allowance for doubtful accounts					(10)		(7)
Inventory					60		50
Property, plant & equipment					250		?
Less: Accumulated depreciation					(40)		(65)
Accounts payable to suppliers					?		$36
Payables for selling expenses (costs)					?		?
Income taxes payable					60		?
Common stock					?		?
Retained earnings					77		?
					?		?

Required, calculate:

Cash at September 30, 2015.

Accounts receivable (gross) at September 30, 2014.

Property, plant and equipment at September 30, 2014.

Accounts payable at September 30, 2015.

Income taxes payable at September 30, 2014.

Retained earnings at September 30, 2014.

Problem D: Refer to the attached consolidated stetement of cashflows to answer the following questions. Financial statement information other than that provided is not necessary to answer the questions.

Basic Concepts

If possible determine the net increase or decrease in Receivables, Inventory and Accounts Payable over the three-year period presented. Bracket (decreases).

($ in thousands)

Accounts Payable

Excluding depreciation and working capital changes, what are the two most significant 2014 non-cash adjustments made to net income to compute cash flow from operating activities?

($ in thousands)

Identify major investing and financing transactions for during the three years presented. Indicate what the largest source of cash flows has been over the three years presented (include cash flow from operating activities as a single source).

($ in thousands)

Primary source of cash flows ($ in thousands)

Basic Analysis

Compute the ratio of depreciation expense to capital expenditures over the three years presented. Discuss what this ratio implies about each firms growth.

($ in thousands)

Capital Expenditure
Ratio of Depr/Cap Exp.

Compute the dividend payout ratio for the three years presented. (Discuss factors that could contribute to differences in the payout ratio.

($ in thousands)

Dividends paid
Net Income
Ratio of Depr/Cap Exp.

a. Compute the amount of debt, both short-term and long term, issued. b. Compare the debt issued to the debt repaid during the three year period. c. What was the net change in debt over the three-year period?

($ in thousands)

Debt Issued
Debt repaid
Net debt issued (repaid)