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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:
- Total current assets
- Total property, plant, and equipment
- Total assets
- Total liabilities
- 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:
- Net income for 2017 was $155,000; there were no gains or losses.
- Cash dividends of $400,000 were declared and paid.
- Bonds payable of $50,000 were retired.
Instructions:
Compute each of the following:
- Net cash provided by operating activities
- Net cash provided (used) by investing activities
- 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:
- Current cash debt coverage
- Cash debt coverage
- Free cash flow
- 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.
5—Warranty arrangement.
On December 31, 2017, Dieker Company sells equipment to Tabor Inc. for $125,000. Dieker includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2017. Dieker estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty.
Instructions
(a) Prepare the journal entry to record this transaction on December 31, 2017.
(b) Repeat the requirements for (a), assuming that in addition to the assurance warranty, Dieker sold an extended warranty (service type warranty) for an additional 2 years (2019–2020) for $2,000.
6—Percentage-of-completion and completed-contract methods.
On February 1, 2017, Marsh Contractors agreed to construct a building at a contract price of $17,400,000. Marsh estimated total construction costs would be $12,000,000 and the project would be finished in 2019. Information relating to the costs and billings for this contract is as follows:
2017 2018 2019
Total costs incurred to date $4,500,000 $7,920,000 $13,800,000
Estimated costs to complete 7,500,000 5,280,000 -0-
Customer billings to date 6,600,000 12,000,000 16,800,000
Collections to date 6,000,000 10,500,000 16,500,000
Instructions
Fill in the correct amounts on the following schedule. For percentage-of-completion accounting and for completed-contract accounting, show the gross profit that should be recorded for 2017, 2018, and 2019.
Percentage-of-Completion Completed-Contract
Gross Profit Gross Profit
2017 _________ 2017 _________
2018 _________ 2018 _________
2019 _________ 2019 _________
7—Franchises.
Pasta Inn charges an initial fee of $2,400,000 for a franchise, with $480,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 10%, is $1,521,000. The franchisee has the right to purchase $90,000 of kitchen equipment and supplies for $75,000. An additional part of the initial fee is for advertising to be provided by Pasta Inn during the next five years. The value of the advertising is $1,000 a month. Collectibility of the payments is reasonably assured and Pasta Inn has performed all the initial services required by the contract.
Instructions
Prepare the entry to record the initial franchise fee. Show supporting computations in good form.
8—Future value of annuity. (Tables needed.)
Linda Ogleby wants to accumulate $40,000 to use for an around the world trip. She plans to accumulate the desired amount by depositing $5,500 annual-year-end payments into an account at the National Bank which pays 4% interest, compounded annually.
- Compute the account balance at the end of the sixth year.
- Compute the amount of each payment that Linda must make at the end of each of the six years to accumulate the $40,000.
9-—Entries for bad debt expense.
A trial balance before adjustment included the following:
Debit Credit
Accounts receivable $140,000
Allowance for doubtful accounts 730
Sales $610,000
Sales returns and allowances 8,000
Give journal entries assuming that the estimate of uncollectible accounts is determined by taking (1) 5% of gross accounts receivable and (2) 3% of gross accounts receivable and assume a $730 debit allowance account balance.
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