ACC 206 Week One Assignment (Updated October 2013).

DOWNLOAD: ACC 206 Week One Assignment (Updated October 2013).

Week One Problems. Please complete the exercises below in either Excel or a Word document (but

must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the “Assignment Submission” button.

 1. Critical Thinking Question:

Answer the following questions:

What is the purpose of the statement of cash flows? What are the three main categories and give examples for each category?

2. Classification of activities

Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or

noncash investing/financing (N) activity.

a. ________ Acquired a new laser printer by paying $950.

b. ________ Received $70,000 from the issuance of common stock.

c. ________ Paid $1,500 of interest on a note payable.

d. ________ Purchased $9,800 of merchandise for cash.

e. ________ Received $10,200 from cash sales.

f. ________ Paid a $15,000 dividend.

g. ________ Acquired a $500,000 building by signing a $500,000 mortgage note.

h. ________ Received $60,000 from the sale of land.

3. Overview of direct and indirect methods

Evaluate the comments that follow as being true or false. If the comment is false, briefly explain why.

a. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only

when the direct method of statement preparation is used.

b. Depreciation expense is added back to net income when the indirect method is used.

c. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed.

d. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported.

e. Both the direct and indirect methods will produce the same cash flow from operating activities.

4. Equipment transaction and cash flow reporting

Property, plant & equipment             Dec. 31, 20X8                  Dec. 31, 20X7

Land                                                             $72,000                               $72,000

Equipment                                                   630,000                                520,000

 Less: Accumulated depreciation               -308,000                           -325,000

 New equipment purchased during 20×8 totaled $175,000. The 20×8 income statement disclosed equipment depreciation expense of $34,000 and a $2,000 loss on the sale of equipment.

 a. Determine the cost and accumulated depreciation of the equipment sold during 20X8.

b. Determine the selling price of the equipment sold.

c. Show how the sale of equipment would appear on a statement of cash flows prepared by using the

indirect method.

5. Cash flow information: Direct and indirect methods

The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:

                                                                                     20X8                            20X7                 Increase / Decrease

Current assets

 Cash                                                                            $55,400                      $35,200                           $20,200

Accounts receivable (net)                                          83,800                        88,000                                 -4,200

Inventory                                                                     243,400                        233,800                                  9,600

Prepaid expenses                                                       25,400                           24,200                                    1,200

 Current liabilities

Accounts payable                                                        $123,600                        $140,600                        ($17,000)

Taxes payable                                                                 43,600                             49,200                              -5,600

Interest payable                                                           9,000                                 6,400                                    2,600

Accrued liabilities                                                        38,800                               60,400                               -21,600

Note payable                                                                44,000                                   —                                      44,000

 The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued liabilities related to the firm’s selling and administrative expenses. The company’s condensed income statement follows.

  SIGN GRAPHICS INC.

Income Statement for the Year Ended December 31, 20×5

 Sales                                                                                                   $691,800

Less: Cost of goods sold                                                                     223,000

Gross profit                                                                                          $468,800

 Less: Selling & administrative expenses         $177,000

 Depreciation expense                                         18,000

  Interest expense                                                 27,000                 222,000

 Add: gain on sale of land                                                                $246,800

                                                                                                                18,800

Income before taxes                                                                          $265,600

Income taxes                                                                                         38,300

Net income                                                                                            $227,300

 Other data:

1. Long-term investments were purchased for cash at a cost of $64,200.

2. Cash proceeds from the sale of land totaled $74,200.

3. Store equipment of $34,000 was purchased by signing a short-term note payable. Also, a $140,000

telecommunications system was acquired by issuing 3,000 shares of preferred stock.

4. A long-term note of $42,200 was repaid.

5. Twenty thousand shares of common stock were issued at $5.19 per share.

6. The company paid cash dividends amounting to $125,000.

 Instructions:

a. Prepare the operating activities section of the company’s statement of cash flows, assuming use of:

1) The direct method.

2) The indirect method.

b. Prepare the investing and financing activities sections of the statement of cash flows.