Reference no: EM131335909

1-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:

1. Total current assets
2. Total property, plant, and equipment
3. Total assets
4. Total liabilities
5. 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:

1. Net income for 2017 was $155,000; there were no gains or losses.

2. Cash dividends of $400,000 were declared and paid.

3. Bonds payable of $50,000 were retired.

Instructions:

Compute each of the following:

1. Net cash provided by operating activities
2. Net cash provided (used) by investing activities
3. 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:

a. Current cash debt coverage
b. Cash debt coverage
c. Free cash flow
d. 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 Gross Profit           Completed-Contract 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.

1. Compute the account balance at the end of the sixth year.
2. 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.