1
Module 6
Revisiting Cash Flow
Charleigh, Inc. Charleigh, Inc.
Income Statement Balance Sheet
For the Year Ended December 31, 2016 December 31,
Sales $ 480,000 2016 2015
Cost of Goods Sold 240,000 Assets
Gross Margin 240,000 Current Assets
Operating Expenses Cash $ 26,200 $ 16,800
Salary Expense $124,000 Accounts Receivable 45,000 38,000
Insurance Expense 12,000Allowance for
Bad Debt Expense 300 Doubtful Accounts 1,200 1,000
Depreciation Expense 2,400 Net Accounts Receivable 43,800 37,000
Total Operating Expenses 138,700 Inventory 10,000 11,000 Operating Income 101,300 Prepaid Insurance _ 100 ______
Other Revenues & <Expenses> Total Current Assets 80,100 64,800
Interest Expense (4,200) Property and Equipment
Gain on sale of Equipment 500 Furniture & Fixtures 186,000 130,000
Net Other Revenue (Expense) (3,700) Less: Accumulated
Taxable Income 97,600 Depreciation (19,400) (20,000)
Tax Expense 29, 280 Net Property and Equipment 166,600 110,000
Net Income $68,320 Other Assets
Patents 500 100
Earnings Per Share $22.57Total Assets $247,200 $174,900
Liabilities
Current Liabilities
Accounts Payable $ 17,000 $ 2,000
Salaries Payable 1,000
Taxes Payable 12,100 13,120
Advertising Payable 100
Current Portion of
Long-term Debt 10,000 10,000
Total Current Liabilities 40,100 25,220
Long-Term Debt
Note Payable-Bank 50,000 60,000 Total Long-Term Debt 50,000 60,000 Total Liabilities 90,100 85,220
Owners’ Equity
Common Stock ($1 par) 3,100 3,000
Capital in Excess Par 30,000 21,000
Retained Earnings 124,000 65,680
Total Owners’ Equity 157,100 89,680
Total Liabilities
& Owners’ Equity $247,200 $174,900
On June 30, the company sold a piece of equipment which had cost $3,500, had accumulated depreciation of $3,000 for $1,000. The Note Payable-Bank is payable at $10,000 per year plus interest at 6% on December 31 of each year. The company wrote off one account which owed $100 during the year. The company paid a dividend during the year. On June 30, the company exchanges 10 shares of stock for equipment worth $1,000. The additional common stock, other that traded for equipment was sold on October 1, 2016 for cash. The additional equipment, other than that exchanged for stock, was purchased for cash.
Do Charleigh Cash Flow using the indirect
Charleigh, Inc. Charleigh, Inc.
Income Statement Balance Sheet
For the Year Ended December 31, 2016 December 31,
Sales $ 480,000 2016 2015
Cost of Goods Sold 240,000 Assets
Gross Margin 240,000 Current Assets
Operating Expenses Cash $ 26,200 $ 16,800
Salary Expense $124,000 Accounts Receivable 45,000 38,000
Insurance Expense 12,000Allowance for
Bad Debt Expense 300 Doubtful Accounts 1,200 1,000
Depreciation Expense 2,400 Net Accounts Receivable 43,800 37,000
Total Operating Expenses 138,700 Inventory 10,000 11,000 Operating Income 101,300 Prepaid Insurance _ 100 ______
Other Revenues & <Expenses> Total Current Assets 80,100 64,800
Interest Expense (4,200) Property and Equipment
Gain on sale of Equipment 500 Furniture & Fixtures 186,000 130,000
Net Other Revenue (Expense) (3,700) Less: Accumulated
Taxable Income 97,600 Depreciation (19,400) (20,000)
Tax Expense 29, 280 Net Property and Equipment 166,600 110,000
Net Income $68,320 Other Assets
Patents 500 100
Earnings Per Share $22.57Total Assets $247,200 $174,900
Liabilities
Current Liabilities
Accounts Payable $ 17,000 $ 2,000
Salaries Payable 1,000
Taxes Payable 12,100 13,120
Advertising Payable 100
Current Portion of
Long-term Debt 10,000 10,000
Total Current Liabilities 40,100 25,220
Long-Term Debt
Note Payable-Bank 50,000 60,000 Total Long-Term Debt 50,000 60,000 Total Liabilities 90,100 85,220
Owners’ Equity
Common Stock ($1 par) 3,100 3,000
Capital in Excess Par 30,000 21,000
Retained Earnings 124,000 65,680
Total Owners’ Equity 157,100 89,680
Total Liabilities
& Owners’ Equity $247,200 $174,900
On June 30, the company sold a piece of equipment which had cost $3,500, had accumulated depreciation of $3,000 for $1,000. The Note Payable-Bank is payable at $10,000 per year plus interest at 6% on December 31 of each year. The company wrote off one account which owed $100 during the year. The company paid a dividend during the year. On June 30, the company exchanges 10 shares of stock for equipment worth $1,000. The additional common stock, other that traded for equipment was sold on October 1, 2016 for cash. The additional equipment, other than that exchanged for stock, was purchased for cash.
Do Charleigh Cash Flow using the Direct Method
From the following information for Molly’s Munchies, prepare a Statement of Cash Flows for the year ended December 31, 2016 using the both the direct and the indirect method.
Balance Balance
12/31/16 12/31/15
Cash93,57520,000
Accounts Receivable68,00035,000
Inventory70,00090,000
Prepaid Insurance 500 3,000 Equipment 440,000 270,000
Accumulated Depreciation65,00020,000
Land 40,000
Security Deposits12,00010,000
Accounts Payable35,000 30,000
Wages Payable 6,500 10,000
Rent Payable 7,500 6,000
Interest Payable 6,000 7,000
Taxes Payable 3,000 5,000
Contract Payable41,075
Note Payable 120,000 140,000
Common Stock ($1 each) 60,000 32,000
Paid In Capital 240,000 128,000
Retained Earnings 140,000 50,000
Sales 1,200,000
Cost of Goods Sold 575,000
Wage Expense 260,000
Rent Expense 24,000
Office Expenses 70,000
Depreciation Expense60,000
Advertising Expense 9,650
Insurance Expense 9,000
Interest Expense15,350
Loss on Sale of Equipment(4,000)
Income Tax Expense 52,000
$50,000 of the equipment was acquired on June 30, 2016 by paying by putting $5,000 down and signing a contract to pay the rest in 10 equal semi-annual payments which include interest at 6% (annual rate). The first payment was made on December 31, 2016. A piece of equipment was sold during the year that had an original cost of $20,000 and accumulated depreciation of $15,000. The rest of the equipment purchased was purchased for cash. The land was purchased by issuing 5,000 shares of stock and paying $15,000 cash. The additional common stock was sold on June 30, 2016. All the rest of the equipment and the land purchased during the year was purchased for cash. The retained earnings balance for both years is after all closing entries have been made. The Note Payable requires payments of $20,000 principal plus interest at 10% on June 30th of each year.
Do a Cash Flow for Molly’s using the indirect method
From the following information for Molly’s Munchies, prepare a Statement of Cash Flows for the year ended December 31, 2016 using the both the direct and the indirect method.
Balance Balance
12/31/16 12/31/15
Cash93,57520,000
Accounts Receivable68,00035,000
Inventory70,00090,000
Prepaid Insurance 500 3,000 Equipment 440,000 270,000
Accumulated Depreciation65,00020,000
Land 40,000
Security Deposits12,00010,000
Accounts Payable35,000 30,000
Wages Payable 6,500 10,000
Rent Payable 7,500 6,000
Interest Payable 6,000 7,000
Taxes Payable 3,000 5,000
Contract Payable41,075
Note Payable 120,000 140,000
Common Stock ($1 each) 60,000 32,000
Paid In Capital 240,000 128,000
Retained Earnings 140,000 50,000
Sales 1,200,000
Cost of Goods Sold 575,000
Wage Expense 260,000
Rent Expense 24,000
Office Expenses 70,000
Depreciation Expense60,000
Advertising Expense 9,650
Insurance Expense 9,000
Interest Expense15,350
Loss on Sale of Equipment(4,000)
Income Tax Expense 52,000
$50,000 of the equipment was acquired on June 30, 2016 by paying by putting $5,000 down and signing a contract to pay the rest in 10 equal semi-annual payments which include interest at 6% (annual rate). The first payment was made on December 31, 2016. A piece of equipment was sold during the year that had an original cost of $20,000 and accumulated depreciation of $15,000. The rest of the equipment purchased was purchased for cash. The land was purchased by issuing 5,000 shares of stock and paying $15,000 cash. The additional common stock was sold on June 30, 2016. All the rest of the equipment and the land purchased during the year was purchased for cash. The retained earnings balance for both years is after all closing entries have been made. The Note Payable requires payments of $20,000 principal plus interest at 10% on June 30th of each year.
Do Molly’s using the Direct Method
Module 6 Homework
BobKat Enterprises, Inc.
Income Statement
For the Year Ended December 31, 2015
Sales $ 900,000
Cost of Goods Sold 400,000
Gross Margin 500,000
Operating Expenses
Wage Expense $250,000
Rent Expense 36,000
Depreciation Expense 30,000
Bad Debt Expense 18,000
Total Operating Expenses 334,000
Operating Income 166,000
Other Revenues & <Expenses>
Interest Expense 16,000>
Taxable Income 150,000
Tax Expense 45,000
Net Income $ 105,000
EPS $ 1.95
BobKat Enterprises, Inc.
Balance Sheet
December 31,
2015 2014 2015 2014
Assets Liabilities
Current AssetsCurrent Liabilities
Cash $ 140,000 $ 170,000Accounts Payable $ 78,000 $ 149,000
Accounts Receivable 80,000 85,000Wages payable 9,000 8,000
Less: Allowance for Interest Payable 3,000 5,000
Doubtful Accounts (10,000) (5,000)Taxes Payable 12,000 10,000
Net Accounts Receivable 70,000 80,000 Total Current Liabilities 102,000 172,000
Inventory 90,000 70,000
Total Current Assets 300,000 320,000Long-Term Debt
Property and Equipment Note Payable 100,000 100,000 Equipment 420,000 340,000 Total Liabilities 202,000 272,000 Less: Accumulated
Depreciation ( 90,000) ( 60,000) Owners’ Equity
Net Property & Equipment 330,000 280,000 Common Stock ($1 per share) 60,000 50,000
Other Assets Retained Earnings 378,000 288,000
Security Deposit 10,000 10,000 Total Owners’ Equity 438,000 338,000
Total Liabilities and
Total Assets $ 640,000 $ 610,000 Owners’ Equity $ 640,000 $ 610,000
Some of the equipment was acquired on June 30, 2015 by exchanging 5,000 shares of common stock worth $5,000. The additional shares of common stock were issued on September 30, 2015. The Note Payable is interest only at 10% and will be paid in 2020. The company did not sell any equipment during the year. The retained earnings balance for both years is after all closing entries have been made.
Problem Sheet
Doorod Dud’s, Inc.
Income Statement
For the Year Ended December 31, 2016
Sales $ 900,000
Cost of Goods Sold 400,000
Gross Margin 500,000
Operating Expenses
Wage Expense $290,000
Rent Expense 36,000
Depreciation Expense 30,000
Bad Debt Expense 8,000
Total Operating Expenses 364,000
Operating Income 136,000
Other Revenues & <Expenses>
Interest Expense (6,000)
Taxable Income 130,000
Tax Expense 39,000
Net Income $ 91,000
EPS $ 1.65
Doorod Dud’s, Inc.
Balance Sheet
December 31,
2016 2015 2016 2015
Assets Liabilities
Current AssetsCurrent Liabilities
Cash $ 130,000 $ 170,000Accounts Payable $ 78,000 $ 139,000
Accounts Receivable 80,000 85,000Wages payable 9,000 8,000
Less: Allowance for Interest Payable 3,000 5,000
Doubtful Accounts (10,000) (5,000)Taxes Payable 12,000 10,000
Net Accounts Receivable 70,000 80,000 Total Current Liabilities 102,000 162,000
Inventory 90,000 70,000
Total Current Assets 290,000 320,000Long-Term Debt
Property and Equipment Note Payable 100,000 110,000 Equipment 420,000 340,000 Total Liabilities 202,000 272,000 Less: Accumulated
Depreciation ( 90,000) ( 60,000) Owners’ Equity
Net Property & Equipment 330,000 280,000 Common Stock ($1 Par) 6,000 5,000
Other Assets Paid In Capital 54,000 45,000
Security Deposit 10,000 10,000 Retained Earnings 368,000 288,000
Total Owners’ Equity 428,000 338,000
Total Liabilities and
Total Assets $ 630,000 $ 610,000 Owners’ Equity $ 630,000 $ 610,000
Some of the equipment was acquired on March 30, 2016 by exchanging 500 shares of common
stock worth $5,000. The additional shares of common stock were issued on September 30, 2016.
The Note Payable at 10,000 per year plus interest at 10%. The company did not sell any equipment
during the year. The retained earnings balance for both years is after all closing entries have been made.
11. Which of the following is NOT a category on the statement of cash flows?
Cash flow from:
A) sales.
B) financing.
C) operations.
13. Which of the following does NOT represent a cash flow relating to operating activity?
A) Cash received from customers.
B) Dividends paid to stockholders.
C) Interest paid to bondholders.
14. Field Inc. owns a piece of specialized machinery. The original cost of the machinery was
$500,000 and to date there is an accumulated depreciation balance of $140,000. Which of the
following will Field recognize on its income statement if it sells the machinery for $400,000?
A) Gain of $40,000.
B) Loss of $100,000.
C) Loss of $360,000
15. Hersi Company’s fixed asset footnote included the following:
During 2015, Hersi sold machinery for a gain of $100,000. The machinery had an original cost of $500,000 and its accumulated depreciation was $240,000.
At the end of 2015, Hersi purchased machinery at a cost of $1,000,000. Hersi paid $400,000 cash. The balance was financed by the seller at 8% interest.
Depreciation expense was $2,080,000 for the year ended 2015.
Calculate Hersi’s cash flow from investing activities for the year ended 2015.
A) $ 360,000 inflow.
B) $ 40,000 outflow.
C) $ 300,000 outflow.
20. When using the indirect method for computing cash flow from operating activities, a change in accounts payable will require which of the following?
A) A negative (positive) adjustment to net income when accounts payable increases
(decreases).
B) A positive (negative) adjustment to net income when accounts payable increases (decreases).
C) A negative adjustment to net income regardless of whether accounts payable increases or
decreases.
21. The difference between cash flow from operations (CFO) under the direct method and CFO under
the indirect method is:
A) balanced by an opposite difference in cash flow from investing.
B) disclosed as a reserve in the footnotes to the cash flow statement.
C) always equal to zero.
22. Victor’s Company has the following changes in its balance sheet accounts:
Net Sales / $500An increase in accounts receivable / 20
A decrease in accounts payable / 40
An increase in inventory / 30
Sale of common stock / 100
Repayment of debt / 10
Depreciation / 2
Net Income / 100
Interest expense on debt / 5
The company’s cash flow from financing is:
A) $100.
B)$ 90.
C) -$10.
26.When a business issues bonds at a discount, which of the following occurs?
A) A revenue account increases and an asset account increases
B) An asset account increases and a liability account decreases
C) An asset account increases and a liability account increases
27. An analyst compiled the following information for Xiao, Inc. for the year ended
December 31, 2015:
Net income was $850,000.
Depreciation expense was $200,000.
Interest paid was $100,000.
Income taxes paid were $50,000.
Common stock was sold for $100,000.
Preferred stock (eight percent annual dividend) was sold at par value of $125,000.
Common stock dividends of $25,000 were paid.
Preferred stock dividends of $10,000 were paid.
Equipment with a book value of $50,000 was sold for $100,000.
Using the indirect method and assuming U.S. GAAP, what was Xiao Inc.’s cash flow from operations (CFO) for the year ended December 31, 2015?
A) $1,050,000.
B)$1,015,000.
C) $1,000,000.
37. Which of the following is least likely a cash flow in the calculation of cash flow from operations
under U.S. GAAP?
A) Interest income.
B) Dividends paid.
C) Dividends received.
Use the Problem Statement
40.What was the Cash Flow from Operating Activities for the year?
A)$ 215,000
B)$ 51,000
C)$ 49,000
41.What was the Cash Flow from (used by) Investing Activities for the year?
A) $ 2,000
B)($75,000)
C)($80,000)
42. What was the Cash Flow from Financing Activities for the year?
A)($ 10,000)
B)($ 16,000)
C)($ 15,000)
43.The Supplemental Cash Flow section will include a statement:
A)describing the exchange of common stock for cash.
B)describing the exchange of common stock for equipment.
C)describing the exchange of cash for a note payable.
44.In the Supplemental Cash Flow section (Indirect method), how much will “Cash paid for
taxes” be?
A)$ 37,000
B)$ 39,000
C)$ 38,000
Module 7
Managerial Element 1
temerity Concentration comes out of
a combination of confidence
and hunger.
(Arnold Palmer)
We have been studying Financial Accounting
Which deals with ______
Managerial accounting is ______
Cost Behavior
We sell Thingamabobs. They cost $90 to make and sell for $ 300 each. Our only other expenses are the rent of $300 per month, utilities of $100 per month and a $10 per unit sales commission we pay to the salespeople. We sold ten during the year.
Fixed Costs are
Variable Costs are
Calculating Break-even
Target Profit
A Contribution Margin Statement
“ The art of conversation lies in listening. ” — Malcolm Forbes
Your Club is thinking about having a dinner. They expect to charge about $30 per head. They need to rent a room in Baker for $300 (includes servers). In addition to the $300, Baker will charge you $10 per dinner. How many dinners must you sell just to break even? How many dinners must you sell to make a profit of $600?
Sarah sells cookies. She uses ingredients that cost $.20 per cookie and sells them for $.50 each. She pays her sales force a 10% commission on all cookies sold. She pays rent of $1,000 per month. Her other fixed costs are $2,000 per month. How many cookies must she sell to break-even? How many cookies does she need to sell to make $2,000 per month? Prepare a contribution margin statement at the level where she is making $2,000 per month.
Using the Contribution Margin%
Gracie Company sells Dodds. The following is an income statement for a recent month.
Sales$250,000
Cost of goods sold 150,000
Gross Margin 100,000
Operating Expenses
Salaries and commissions $42,000
Rent 18,000
Utilities 7,000
Other 3,000 70,000
Net Income $30,000
Gracie sells one product, Dodds at $20 each. Cost of goods sold is variable. A 10% sales commission, included in salaries and commissions, is the only other variable cost. Gracie tells you that the income statement is not helpful, for she cannot determine such things as the break-even point.
Redo the statement using the contribution margin format.
What is the breakeven in units and dollars
Using the Contribution Margin%
Acme Company sells anvils and the following is per anvil
Unit Selling Price$20
Variable Costs 12
Total fixed costs $ 400,000
Total volume 100,000 units
Prepare an income statement using the contribution margin format
What is Acme’s Break Even point in units
In $
Now assume that Acme wants to make $1,000,000 per year. How many anvils does the company need to sell to accomplish this (in units and dollars).
The CFO of Garven Company provides the following per-unit analysis, based on a volume of 100,000 units
Selling Price$30
Variable Costs $12
Fixed Costs 9
Total Costs 21
Profit per unit $ 9
Answer each of the following questions independent of your answers to the other questions
1) What total profit does Garven expect to earn?
2) What would be the total profit at 110,000 units? (Be careful- they are fixed costs)
3) What is the break-even point in units?
4) Garven’s managers think they can increase volume to 120,000 units by spending an additional $ 60,000 on salespeople. What total profit would they earn if they make this move?
5)Break-even using Contribution Margin %
Now go back to the Hot Dog Stand
You have decided to open a hot dog stand at the corner of Court and Union. The following is your opening balance sheet. You own the only 50,000 shares of stock outstanding for your company. You sell the dogs for $2.00 each. You pay your worker a fixed salary of $20,000 plus $.10 for each dog she sells. (Dogs cost $.40 each- how do I know that?)
Assets
Cash 5,000
Inventory 10,000
Cart 35,000
Total 50,000
Liabilities
Owners’ Equity
Common Stock 50,000
Retained Earnings -0-
Total 50,000
Income Statement Using
Contribution Margin Format
For the First Year
Sales 60,000 Sales 120,000
Cost of Sales 12,000 Cost of Sales 24,000
Gross Margin 48,000
Operating Expenses
Wages 23,000
Other 10,000
Total Operating Expenses 33,000
Operating Income 15,000
How many hot dogs do you need to sell to break-even
Per Year
Per Month Per Week Per Day Per Hour