Name: ______(Printed neatly)
Take-home QuizAcct 592
Orofino Outfitters (SCF)
Everyone must submit this SIGNED statement with their assignment:
I hereby affirm and certify that I received no help on this exam question from anyone and that I did not provide help or consultation on this problem to any other student, and that I did not check my answers against those of another student.Signature Date
Attach manual or excel spreadsheet. YOU MUST PREPARE FORMAL STATEMENT IN GOOD FORM in addition to the working paper for full credit.
This is an individual assignment. You have a check figure. Do NOT discuss with other students!
Check figure for cash provided by operations = $555,000
Take-home Exam For Acct 592Statement of Cash Flow with Pension, Leases and Options
Prepare a statement of cash flows (direct method) including the required reconciling schedule and any other required disclosures for Orofino Outfitters, Inc. Information from the balance sheet and income statement have been entered into a worksheet for your convenience. Use of the worksheet is optional. However, you MUST prepare a formal statement with headings, subtotals, etc. for full credit, i.e., completion of just the worksheet will not get you the maximum number of available points.
Income Statement
For year ending December 31, 2006
Sales / 6,800,000
Equity in earnings of investee / 75,000
Gain/(loss) on sale of plant assets / (170,000)
Realized gain/(loss) on investments / 59,000
Interest and dividend revenue / 12,000
Total revenues / 6,776,000
Cost of goods sold / 3,510,000
Salaries and wages / 732,000
Pension expense / 17,000
Other operating expenses / 321,000
Bad debt expense / 74,000
Depreciation expense / 78,000
Amortization of intangibles / 4,000
Accretion expense / 2,000
Interest expense / 492,000
Income taxes expense / 603,000 / 5,833,000
Net income / 943,000
Other comprehensive income
Holding gain/(loss) net of 20% tax / 8,000
Pension gain/(loss) net of 40% tax / 9,000 / 17,000
Comprehensive income / 960,000
ADDITIONAL INFORMATION
a. OOI declared the $10 per dividend share on the preferred stock and a $0.20 per share dividend on the common stock. Dividends declared totaled $725,000.
b. At the beginning of the year, OOI had 80,000 shares of fully vested employee stock options. The option price was $20 and the fair value was $13. During the year, employees exercised all of the options when the market price was $39 per share. The tax rate pertinent to the options was 40%.
c. On May 31, 2006, the holders of 8,000 shares of the $100 par preferred stock elected to convert their shares to common stock. The conversion ratio was 5 shares of common stock for each share of preferred stock.
d. The noncurrent investment represents 20% of the outstanding securities of the investee. This investment is accounted for using the equity method. During 2006, OOI received $30,000 in dividends from the investment.
e. On May 1, 2006, OOI acquired equipment under a capital lease. At the inception of the lease, the present value of the minimum lease payments was $552,000.
f. Equipment costing $500,000 was sold during the year for $30,000. The book value was $200,000.
g. On Dec. 15, 2006, OOI acquired a patent on a new process for $400,000.
h. During the year, OOI paid cash for $500,000 in land, a $4,000,000 building, and $736,000 in equipment.
i. On August 5, 2006, OOI issued 100,000 shares of common stock for $32 per share.
j. OOI purchased $380,000 in marketable securities during the year.
k. During 2006, OOI sold marketable securities which it had acquired for $230,000 for $289,000.
l. The fair value of available for sale securities at year end was $450,000. The deferred taxes on the holding gains and losses in accumulated other comprehensive income was based on a 20% capital gains tax rate.
m. On November 15, 2006, OOI acquired a parcel of land in exchange for 25,000 shares of common stock when the stock was trading at $40 per share.
n. OOI issued $3,000,000 in bonds at face value on July 1, 2006.
o. OOI has a pension plan. The contribution to the plan for 2006 was $16,000. The tax rate related to deferred taxes on accumulated other comprehensive income items related to the pension plan was 40%.
Orofino Outfitters Inc.Balance Sheet / 12/31/06 / 12/31/05
Current Assets
Cash / 649,000 / 100,000
Securities Available for Sale (at cost) / 400,000 / 250,000
Allow to adj AFS to market / 50,000 / 40,000
Accounts Receivable / 3,372,000 / 3,100,000
Allowance for doubtful accounts / (196,000) / (150,000)
Merchandise Inventory / 390,000 / 900,000
Prepaid Operating Expenses / 54,000 / 50,000
4,719,000 / 4,290,000
Noncurrent Assets
Investments (equity method) / 1,245,000 / 1,200,000
Plant, property & equipment / 22,938,000 / 16,650,000
Accumulated Depreciation / (1,578,000) / (1,800,000)
Intangible Assets (other) / 436,000 / 40,000
TOTAL ASSETS / 27,760,000 / 20,380,000
Current Liabilities
Accounts Payable / 825,000 / 1,675,000
Salaries Payable / 13,000 / 21,000
Income Taxes Payable / 63,000 / 32,000
Dividends Payable / 181,000 / 75,000
Current portion long term debt / 23,000 / 15,000
1,105,000 / 1,818,000
Noncurrent Liabilities
Bonds Payable / 5,000,000 / 2,000,000
Discount on Bonds / (257,000) / (280,000)
Deferred Income Taxes / 68,000 / 75,000
Lease obligations / 895,000 / 1,025,000
Net pension obligation / 26,000 / 40,000
Asset retirement obligation / 25,000 / 23,000
Other long term liabilities / 1,792,000 / 2,800,000
7,549,000 / 5,683,000
Stockholder's Equity
Convertible preferred, $100 par / 2,200,000 / 3,000,000
Common stock, $10 par / 4,450,000 / 2,000,000
Additional paid in capital / 10,190,000 / 5,000,000
APIC - stock options / 0 / 1,040,000
APIC - excess tax deduction / 517,000 / 325,000
AOCI - holding gain/loss on available-for-sale investments (net of tax) / 40,000 / 32,000
AOCI - pension gain/loss (net of tax) / (21,000) / (30,000)
Retained Earnings / 1,730,000 / 1,512,000
19,106,000 / 12,879,000
Total liabilities and equity / 27,760,000 / 20,380,000
The posted excel file has a “print version” and an “excel version” of a working paper to do the statement of cash flows. The “excel version” has selected formulas that will be helpful if you are going to do the problem in Excel. Otherwise, print the one without the extra formulas to avoid confusion.
Tips for handling AOCI – holding gain/loss and post-retirement items
1. The before-tax change is more clearly related to the other balance sheet accounts involved with the items. For example, the allowance account change for available for sale securities is presented before tax. For the pension obligation (or asset), the change is related to the before tax figures for amortizations of transition amounts, prior service cost or actuarial gain/loss as well as other gains and losses due to changes in actuarial assumptions.
a. Accordingly, your first step is to REMOVE the deferred taxes for the year from each AOCI account with the opposite side of the entry in the regular deferred tax account (either an asset or a liability).
b. At this point you will have the pre-tax changes left. The pre-tax change related to available for sale securities will perfectly offset the change in the related allowance account.
c. The pre-tax changes in AOCI accounts related to pensions and other postretirement benefit accounts can then be offset against the pension liability (or asset) account.
d. Once you’ve dealt with all the deferred taxes in AOCI, the remaining change in the deferred income taxes account is related to income tax expense in the income statement section (for the direct method). For the indirect method, you will have two reconciling amounts (that can be combined). They will be the entire change in the deferred tax account (from the target column) less the taxes reported on the statement of comprehensive income (SCI). If the SCI is shown net of tax, you will need to refer to the notes of the financial statement to determine the tax effects or estimate it from given tax rate information.
e. After you’ve offset all the pre-tax changes in AOCI items related to pensions to the respective pension or OPEB asset or liability account, the remaining change during the year will be the difference between what was expensed and what was contributed to the pension plan. Take this remaining change to pension expense in the income statement section (direct method). For the indirect reconciliation, you will have a line for the difference between pension expense and the amount contributed to plan assets (or used to pay retirees if there are no plan assets).
5