Answer to the Problem No 01

Compute the Cash Collection

Particulars Amount
Opening Balance 60,000
Add: Sales 540,000
Less: Closing Balance (70,500)
529,500
Less: Bad debts for the period (5400)
Change in allowance for accounts receivable 750
Cash Collection from accounts Receivable 524,850

Compute Cash Payments to Accounts Payable

Particulars Amount
Opening Balance 24,750
Purchase 386,000
Less: Closing Balance (35,000)
Payments to Account Payable 375,750

Compute the Cash Payment to Expenses

Particulars Amount
Operating Expenses 120,450
Less: Depreciation (8,625)
Less: Bad Debts (5,400)
Add: Opening Accrued Payable 1,500
Less: Closing Accrued Payable (2,250)
Cash Paid for Operating Expenses 105,675

a. Prepare Cashflow from Operating Activities using the direct method

MARCUS INC
STATEMENT OF CASHFLOW – DIRECT MEHOD DECEMBER 2014

Particular Amount
Cash Collection from accounts Receivable 524,850
Cash Payment to Supplies (375,750)
Cash Payment to Operating Expenses (105,675)
Net Cash Provided by Operating Activity 43,425

b. Prepare Cashflow from Operating Activities using the indirect method

MARCUS INC
STATEMENT OF CASHFLOW – INDIRECT MEHOD DECEMBER 2014

Particulars Amount
Net Income 42,500
Depreciation Expense – Machinery 4,125
Depreciation Expense – Building 4,500
Loss on Sales - Machinery 800
Gain on Sales on investment (3,750)
Increase in Accounts Receivable (9,750)
Increase in Inventory (6,000)
Increase in Accounts Payable 10,250
Increase in Accrued Payable 750
Net Cashflow from Operating Activities 43,425

Purchase of Machinery (15,000)

Purchase of Building (11,250)
Sales of Machinery 2,200
Purchase of available Securities (8,750)
Sales of Securities 28,750
Net Cashflow from Investing Activities (4,050)

Payments of Notes Payable (10,000)

Cash Dividend Paid (21,125)
Net Cashflow from Financing Activities (31,125)

Net Change in Cash 8,250

Add: Beginning Cash Balance 33,750
Ending Cash Balance 42,000

Answer to the Problem No. 02

a.

  Total Factory Sales Administrative

Wages $188,000 $120,000 $32,000 $36,000
FICA $13,142 $9,180 $1,208 $2,754
Federal UC $352 $320 $32  
State UC $1,100 $1,000 $100  
Total $202,594 $130,500 $33,340 $38,754

Working:

  Factory Sales Administrative

Wages 120,000 32,000 36,000
FICA 120,000 * 0.0765 (32000-20000)*0.0765+20000*0.0145 36,000*0.0765
Federal UC 40,000*0.008 4000 * 0.08  
State UC 40,000*0.025 4,000*0.025

b. Factory payroll

Dr Cr
Wages and salary expense $120,000  
Cash   $94,820
Withholding tax payable   $16,000
FICA tax payable   $9,180
Payroll tax expense $10,500  
FICA tax payable   $9,180
State UC   $1,000
Federal UC   $320

Sales Payroll
 Dr Cr
Wages and salary expense $32,000  
Cash   $23,792
Withholding tax payable   $7,000
FICA tax payable   $1,208
Payroll tax expense $1,340  
FICA tax payable   $1,208
State UC   $100
Federal UC   $32

Administrative Payroll

Dr Cr
Wages and salary expense $36,000  
Cash   $27,246
Withholding tax payable   $6,000
FICA tax payable   $2,754
Payroll tax expense $2,754  
FICA tax payable   $2,754

Answer to the Problem No 03

a.

Income as per Financial Statement:          1,00,000

Warranty Expense (7000-2000)                5,000
Profit on Construction (92000-67000)           (25,000)
Depreciation (80000-60000)           (20,000)
Fine for violation of Pollution Law                3,500
Tax Free Income             (1,500)
Taxable Income             62,000

b.

Warranty Expense (7000-2000)                5,000

Profit on Construction (92000-67000)           (25,000)
Depreciation (80000-60000)           (20,000)
Timing Difference           (40,000)
Tax Rate 40%
Deferred Tax Liability             16,000

c.

Tax Exp A/c (62000*40%)   24800

Income Tax Payable A/c                                   24800

Tax Exp (DTL) A/c                   16000

Deferred Tax Liability (Liability) A/c                     16000

d.

Income Before Income Tax   100000

Less: Tax Exp    

-Income Tax Payable -24800  

-Deferred Tax Liability -16000 -40800

Profit After Tax   59200

 Answer to the Problem No 04

SARGENT CORPORATION
BALANCE SHEET DECEMBER 2014

ASSETS:

CURRENT ASSETS
CASH 150000
TRADING INVESTMENTS (FAIR VALUE) 80000
ACCOUNTS RECEIVABLE 170000
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS -10000 160000
INVENTORY, AT LOWER OF COST (WITH THE USE OF
180000
FIFO OR MARKET)
TOTAL CURRENT ASSETS 570000
LONG TERM INVESTMENTS
INVESTMENTS IN COMMON STOCK (FAIR VALUE) 270000
BOND SINKING FUND 250000
CASH SURRENDER VALUE OF LIFE INSURANCE 40000
 LAND HELD FOR FUTURE USE 270000
TOTAL LONG TERM INVESTMENTS 830000
PROPERTY, PLANT AND EQUIPMENT
LAND 500000
BUILDINGS 1040000
LESS ACCUMULATED DEPRECIATION (BUILDING) -360000 680000
EQUIPMENT 450000
LESS ACCUMULATED DEPRECIATION (EQUIPMENT) -180000 270000
TOTAL PROPERTY, PLANT AND EQUIPMENT 1450000
INTANGIBLE ASSETS
FRANCHISES 165000
GOODWILL 100000
TOTAL INTANGIBLE ASSETS 265000
TOTAL ASSETS 3115000

Liabilities and Stockholder's Equity

Current Liabilities
Accounts Payable 140000
Notes Payable 80000
Taxes Payable 40000
Unearned Revenue 5000
Total Current Liabilities 265000
Long Term Liabilities
Notes Payable 120000
7% Bonds Payable 1000000
Less Discount on Bonds Payable -40000 960000
Total Long Term Liabilities 1080000
Total Liabilities 1345000
Stockholder's Equity
Capital Stock
Preferred Stock, No Par Value
200000 Shares Authorized
70000 Issued and Outstanding 450000
Common Stock, $1 Par Value
400000 Share Authorized
100000 Issued and Outstanding 100000
Paid in Capital in Excess 900000
Total Paid in Capital 1450000
Retained Earnings 320000
Total Stockholder's Equity 1770000

Total Liabilities and Stockholder's Equity 3115000

Ans to the Problem No 05

a.

Twain Corporation
Income Statement for the Year Ended June 30, 2014

Sales Revenue
Sales revenue $1,578,500
Less: Sales discounts 31,150
Sales returns and allowances 62,300 93,450
Net sales 1,485,050
Cost of goods sold 896,770
Gross profit 588,280

Operating Expenses
Selling expenses
Sales commissions 97,600
 Salaries and wages expense 56,260
Travel expense 28,930
Delivery expense 21,400
Entertainment expense 14,820
Telephone & internet expense 9,030
Maintenance & repairs expense 6,200
Depreciation expense 4,980
Bad dept expense 4,850
Misc. selling expense 4,715 248,785

Administrative Expenses
Maintenance and repairs expense 9,130
Property tax expense 7,320
Depreciation expense 7,250
Office expense 6,000
Office supplies used 3,450
Telephone & internet expense 2,820 35,970

Income from operations 303,525

Other Revenues and Gains

Dividend revenue 38,000

Other Expenses and Losses

Interest expense 18,000

Income before income tax 323,525

Income tax 102,000

Net income $221,525

 Earnings per common share [($221,525 – 9,000) / 80,000] $2.66

Twain Corporation
Retained Earnings Statement
For the Year Ended June 30, 2014

Retained earnings, July 1, 2013, as reported 337,000

Correction of depreciation understatement, net of tax (17,700)

Retained earnings, July 1, 2013, as adjusted 319,300

Add: Net income 221,525

540,825

Less: Dividends declared on preferred stock 9,000

Less: Dividends declared on common stock 37,000 46,000

Retained earnings, June 30, 2014 $494,825

b.

Twain Corporation
Income Statement
For the year ended June 30, 2014

Revenues
Net Sales 1,485,050
Dividend Revenue 38,000
Total Revenue 1,523,050

Expenses
Cost of Goods Sold 896,770
Selling Expense 248,785
Administrative Expense 35,970
Interest Expense 18,000
Total Expenses 1,199,525
Income before income tax 323,525
Income tax 102,000
Net Income $ 221,525

Earnings Per Common Share $ 2.66

Twain Corporation
Retained Earnings Statement
For the year ended June 30, 2014

Retained Earnings, July 1,2013 as reported 337,000

Correction of depreciation understatement, net of tax (17,700)
Retained Earnings, July 1, 2013, as adjusted 319,300
Add: Net income 221,525
540,825
Less:
Dividends declared on preferred stock 9,000
Dividends declared on common stock 37,000 46,000

Retained earnings, June 30, 2014 $494,825