Prepare a statement of cash flows using the indirect method

Reference no: EM131217597

Assignment 1 -

(SCF-Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Marcus Inc. are presented below.

MARCUS INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2014 AND 2013 December 31
Debit Accounts	2014	2013
Cash	$42,000	$33,750
Accounts Receivable	70,500	60,000
Inventory	30,000	24,000
Investment (available-for-sale)	22,250	38,500
Machinery	30,000	18,750
Building	67,500	56,250
Land	7,500	7,500
	$269,750	$238,750
Credit Accounts
Allowance for Doubtful Accounts	$2,250	$1,500
Accumulated Depreciation-Machinery	5,625	2,250
Accumulated Depreciation-Building	13,500	9,000
Accounts Payable	35,000	24,750
Accrued Payables	3,375	2,625
Long-Term Notes Payable	21,000	31,000
Common Stock, no-pair	150,000	125,000
Retained Earnings	39,000	42,625
	$269,750	$238,750

Additional data (ignoring taxes):

1. Net income for the year was $42,500.

2. Cash dividends declared and paid during the year were $21,125.

3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.

4. Investments that cost $25,000 were sold during the year for $28,750.

5. Machinery that cost $3,750, on which $750 of depreciation had accumulated, was sold for $2,200.

Marcus's 2014 income statement follows (ignoring taxes).

Sales revenue $540,000

Less: Cost of goods sold 380,000

Gross margin 160,000

Less: Operating expenses (includes $8,625 depreciation and $5,400 bad debts) 120,450

Income from operations 39,550

Other: Gain on sale of investments $3,750

Loss on sale of machinery (800) 2,950

Net income $ 42,500

Instructions

(a) Compute net cash flow from operating activities using the direct method.

(b) Prepare a statement of cash flows using the indirect method.

Assignment 2 -

Q1. (Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September30, 2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its.

Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

BRADBURN CORPORATION BALANCE SHEET MARCH 31
Assets	2015	2014
Cash	$18,200	$12,500
Notes receivable	148,000	132,000
Accounts receivable (net)	131,800	125,500
Inventories (at cost)	105,000	50,000
Plant & equipment (net of depreciation)	1,449,000	1,420,500
Total assets	$1,852,000	$1,740,500
Liabilities and Stockholder's Equity
Accounts payable	$79,000	$91,000
Notes payable	76,000	61,000
Accrued liabilities	9,000	6,000
Common stock (130,000 shares, $10 per)	1,300,000	1,300,000
Retained earnings_a	388,000	282,000
Total liabilities and stockholders' equity	$1,852,000	$1,740,500
_aCash dividends were paid at the rate of $1 per share in fiscal year 2014 and $2 per share in fiscal year 2015

Instructions

(a) Compute the following items for Bradburn Corporation.

(1) Current ratio for fiscal years 2014 and 2015.

(2) Acid-test (quick) ratio for fiscal years 2014 and 2015.

(3) Inventory turnover for fiscal year 2015.

(4) Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.)

(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2014 to 2015.

(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes.

(c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year 2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss.

(d) Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss.

BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31
	2015	2014
Sales revenue	$3,000,000	$2,700,000
Cost of goods sold_a	1,530,000	1,425,000
Gross margin	1,470,000	1,275,000
Operating expenses	860,000	780,000
Income before income taxes	610,000	495,000
Income taxes (40%)	244,000	198,000
Net income	$366,000	$297,000
_aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2014 and 2015, respectively, are included in cost of goods sold.

Q2. (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.

GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2015 AND 2014 December 31
Assets	2015	2014
Cash	$180,000	$275,000
Accounts receivable	220,000	155,000
Short-term investment	270,000	150,000
Inventories	1,060,000	980,000
Prepaid expanses	25,000	25,000
Plant & equipment	2,585,000	1,950,000
Accumulated depreciation	(1,000,000)	(750,000)
	$3,340,000	$2,785,000
Liabilities and Stockholders' Equity
Account payable	$50,000	$75,000
Accrued expenses	170,000	200,000
Bonds payable	450,000	190,000
Capital stock	2,100,000	1,770,000
Retained earnings	570,000	550,000
	$3,340,000	$2,785,000

Instructions-

(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders' equity.

(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.

(d) Of what value is the additional information provided in part (b)?

Reference no: EM131217597

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