Avatar Auto Parts Company uses the indirect method to prepare its statement of cash flows. Refer to the following financial statement information for the year ending December 31, 2015:

Avatar Company

Comparative Balance Sheet

December 31, 2015 and 2014

2015 2014 Increase / (Decrease)
Cash $33,000 $13,000 $20,000
Accounts Receivable 29,000 36,000 (7,000)
Inventory 56,000 29,000 27,000
Plant and Equipment, net 126,000 92,000 34,000
Total Assets $244,000 $170,000 $74,000
Accounts Payable $9,000 $13,000 $(4,000)
Accrued Liabilities 7,000 3,000 4,000
Long-term Notes Payable 70,000 79,000 (9,000)
Total Liabilities $86,000 $95,000 $(9,000)
Common Stock $55,000 $3,000 $52,000
Retained Earnings 115,000 78,000 37,000
Treasury Stock (12,000) (6,000) (6,000)
Total Stockholders’ Equity $158,000 $75,000 $83,000
Total Liabilities and Stockholders’ Equity $244,000 $170,000 $74,000

Avatar Company

Income Statement

Year Ended December 31, 2015

Sales Revenue $291,300
Interest Revenue 1,000
Gain on Sale of Plant Assets 6,000
Total Revenues and Gains $298,300
Cost of Goods Sold 145,000
Salaries and Wages Expense 49,000
Depreciation Expense—Plant Assets 16,000
Other Operating Expense 25,000
Interest Expense 3,500
Income Tax Expense 7,800
Total expenses 246,300
Net Income $52,000

Additional information provided by the company includes the following:

Equipment costing $60,000 was purchased for cash.

Equipment with a net asset value of $10,000 was sold for $16,000

During 2015, the company repaid $43,000 of Long-Term Notes Payable.

During 2015, the company borrowed $34,000 on a new Note Payable

There were no stock retirements during the year.

There were no sales of Treasury Stock during the year.

Requirement: Prepare a statement of cash flows for year end 2015



Question 1. 1. (TCO 1) Production-cost cross-subsidization results from (Points : 3)

allocating indirect costs to multiple products.
assigning traced costs to each product.

assigning costs to different products using varied costing systems within the same organization.

assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products.
Question 1. 1. (TCO 1) Production-cost cross-subsidization results from (Points : 3)

allocating indirect costs to multiple products.
Question 2. 2. (TCO 1) Building or plant security is an example of (Points : 3)

unit-level costs.

batch-level costs.

product-sustaining costs.

facility-sustaining costs.

Question 3. 3. (TCO 1) Evaluating customer reaction of the trade-off of giving up some features of a product for a lower price would best fit which category of management decisions under activity-based management? (Points : 3)

Pricing and product-mix decisions

Cost reduction decisions

Design decisions
Discretionary decisions

Question 4. 4. (TCO 1) Overcosting of a product is MOST likely to result from (Points : 3)

misallocating direct labor costs

overpricing the product

undercosting another product.

understating total product costs

Question 5. 5. (TCO 1) The MOST likely example of a batch-level cost is (Points : 3)

utility costs

machine repairs.

product-designing costs.

setup costs.

Question 6. 6. (TCO 1) Which method of allocation probably best estimates actual overhead costs used? Why? (Points : 3)

Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.

Single direct labor-hours cost driver because it is easiest to analyze and interpret.

Three activity-cost drivers because they best reflect the relative consumption of resources.

Three activity-cost drivers because product costs can be significantly cross-subsidized.
Question 7. 7. (TCO 1) Activity-based management (ABM) includes decisions about all EXCEPT (Points : 3)

pricing and product mix.

smoothing costs.

reducing costs.
improving processes


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