Question
Question 9.1 What primary factor should a creditor consider when evaluating whether a corporation can pay the interest and principal on a loan at maturity?
Question 9.1
- What primary factor should a creditor consider when evaluating whether a corporation can pay the interest and principal on a loan at maturity?
- Question 9.2
- Classify each of the following as an operating, investing, or financing activity under ASPE:
- Loaning money
- Receipt of cash from the issuance of bonds payable
- Receipt of cash from the sale of equipment
- Payments of acquisition of land
- Receiving cash from customers
- Receiving interest revenue
- Payments for inventory
- Payments for interest
- Receipt of cash from the issuance of stock
- Dividends paid to shareholders
- Receipt of dividend income
- Payment of salaries to employees
- Payment of taxes
- Question 9.3
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Three-Eyed Raven Ltd. reported the following on December 31, 2016 (in thousands):
2016
2015
From the comparative balance sheet
Property and equipment, net
$11,150
$9,590
Long-term notes payable
4,400
3,080
From the statement of cash flows:
Depreciation
$1,920
Capital expenditures
(4,130)
Proceeds from sale of property and equipment
770
Proceeds from issuance of long-term note payable
1,190
Payment of long-term note payable
(110)
Issuance of common shares
383
- Determine the following items for Three Eyed Raven Ltd. During 2016:
- Gain or loss on the sale of property and equipment.
- Amount of long-term debt issued for something other than cash.
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Question 9.4
Classic Automobiles of Huntsville Ltd. was formed on January 1, 2016, when Classic issued common shares for $300,000. Early in January 2016, Classic made the following cash payments:
- $150,000 for equipment
- $120,000 for inventory (four cars at $30,000 each)
- $20,000 for 2016 rent on a store building
-
In February 2016, Classic purchased six cars for inventory on account. Cost of this inventory was $260,000 ($43,333.33 each). Before year-end, Classic paid $208,000 of this debt. Classic uses the FIFO method to account for inventory.
During 2016, Classic sold eight vintage autos for a total of $500,000. Before year-end, Classic collected 80% of this amount.
The business employs three people. The combined annual payroll is $95,000, of which Classic owes $4,000 at year-end. At the end of the year, Classic paid an income tax of $10,000.
Late in 2016, Classic declared and paid cash dividends of $11,000.
For equipment, Classic uses the straight-line depreciation method over five years with zero residual value.
- Prepare Classic Automobiles of Huntsville Ltd.s income statement for the year ended December 31, 2016. Use the single-step format with all revenues listed together and all expenses listed together.
- Prepare Classics balance sheet on December 31, 2016.
- Prepare Classics statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the indirect method.
- Comment on the business performance based on the statement of cash flows.
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