BUSINESS

1—Balance sheet computations.

 

 

 

(Balance Sheet) Presented below is the trial balance of Hightower Corporation at December 31, 2017.

     Debit    Credit
Cash 295,000  
Sales Revenue   $12,150
Debt Investments (trading) (at cost, $218,000) 230,000  
Cost of Goods Sold 7,200  
Debt Investments (long-term) 448,000  
Equity Investments (long-term) 416,000  
Notes Payable (short-term)   135,000
Accounts Payable   682,000
Selling Expenses 3,000,000  
Investment Revenue   95,000
Land 390,000  
Buildings 1,560,000  
Dividends Payable   204,000
Accrued Liabilities   144,000
Accounts Receivable 652,000  
Accumulated Depreciation–Buildings   228,000
Allowance for Doubtful Accounts   38,000
Administrative Expenses 1,350,000  
Interest Expense 317,000  
Inventory 895,000  
Gain   120,000
Notes Payable (long-term)   1,350,000
Equipment 900,000  
Bonds Payable   1,500,000
Accumulated Depreciation–Equipment   90,000
Franchises 240,000  
Common Stock ($5 par)   1,500,000
Treasury Stock 287,000  
Patents 293,000  
Retained Earnings   117,000
Paid-in Capital in Excess of Par     120,000
Totals   $18,473,000   $18,473,000

Instructions

Compute each of the following:

1.   Total current assets

2.   Total property, plant, and equipment

3.   Total assets

4.   Total liabilities

5.   Total stockholders’ equity

 

 

2—Statement of cash flows.

A comparative balance sheet for Talkington Corporation is presented below.

  December 31
Assets     2017           2016    
Cash      
Accounts receivable $  68,100   $  21,600
Inventory 82,800   33,000
Land 170,200   83,800
Equipment 71,400   74,000
Accumulated depreciation–equipment 280,500   212,400
Total (74,000)   (42,000)
  $597,000   $545,000
       
Liabilities and Stockholders’ Equity      
       
Accounts payable $ 34,000   $ 47,000
Bonds payable 150,000   200,000
Common stock ($1 par) 164,000   164,000
Retained earnings 249,000   134,000
Total $597,000   $545,000

Additional information:

1.   Net income for 2017 was $155,000; there were no gains or losses.

2.   Cash dividends of $400,000 were declared and paid.

3.   Bonds payable of $50,000 were retired.

Instructions:

Compute each of the following:

1.   Net cash provided by operating activities

2.   Net cash provided (used) by investing activities

3.   Net cash provided (used) by financing activities

 

 

3—Statement of cash flows ratios.

Financial statements for Hilton Company are presented below:

Hilton Company

Balance Sheet

December 31, 2017

Assets                                                             Liabilities & Stockholders’ Equity

Cash                                                       $ 40,000            Accounts payable                    $ 20,000

Accounts receivable                                  35,000            Bonds payable                            50,000

Buildings and equipment                            150,000          Common stock                           65,000

Accumulated depreciation—                                             Retained earnings                       60,000

buildings and equipment                       (50,000)                                                          $195,000

Patents                                                       20,000

$195,000

 

 

 

Hilton Company

Statement of Cash Flows

For the Year Ended December 31, 2017

Cash flows from operating activities

Net income                                                                                                                 $50,000

Adjustments to reconcile net income to net cash

provided by operating activities:

Increase in accounts receivable                                       $(16,000)

Increase in accounts payable                                                8,000

Depreciation—buildings and equipment                               15,000

Gain on sale of equipment                                                     (6,000)

Amortization of patents                                                           2,000                  3,000

Net cash provided by operating activities                                                                            53,000

Cash flows from investing activities

Sale of equipment                                                                             12,000

Purchase of land                                                                              (25,000)

Purchase of buildings and equipment                                             (48,000)

Net cash used by investing activities                                                                                  (61,000)

Cash flows from financing activities

Payment of cash dividend                                                               (15,000)

Sale of bonds                                                                                    30,000

Net cash provided by financing activities                                                                             15,000

Net increase in cash                                                                                                               7,000

Cash, January 1, 2017                                                                                                         33,000

Cash, December 31, 2017                                                                                                 $40,000

 

At the beginning of 2017, Accounts Payable amounted to $12,000 and Bonds Payable was $20,000.

 

Instructions

Calculate the following for Hilton Company:

a.   Current cash debt coverage

b.   Cash debt coverage

c.   Free cash flow

d.   Explain the purpose of free cash flow analysis.

 

 

 

4—Sales with returns and discounts.

On July 2, 2018, Lake Company sold to Sue Black merchandise having a sales price of $9,000 (cost $5,400) with terms of 2/10. n/30. f.o.b. shipping point. Lake estimates that merchandise with a sales value of $900 will be returned. An invoice totaling $120, terms n/30, was received by Black on July 6 from Pacific Delivery Service for the freight cost. Upon receipt of the goods, on July 3, Black notified Lake that $350 of merchandise contained flaws. The same day, Lake issued a credit memo covering the defective merchandise and asked that it be returned at Lake’s expense. Lake estimates the returned items to have a fair value of $140. The freight on the returned merchandise was $20 paid by Lake on July 7. On July 12, the company received a check for the balance due from Black.

 

Instructions

(a)Prepare journal entries for Lake Company to record all the events noted above assuming sales and receivables are entered at gross selling price.

(b)   Prepare the journal entry assuming that Sue Black did not remit payment until August 5.

 

 

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