Reference no: EM132459204
Question 1. (15 points) G Company's balance sheets as of 12-31-18 and 12-31-19 and its income statement for the year ended 12-31-19 follow:
Additional information for G follows:
12-31-18 12-31-19
Cash $1,513,000 $992,000
Short-term accounts receivables from customers, net 750,000 700,000
Prepaids 275,000 300,000
Plant assets 2,800,000 3,784,000
Accumulated depreciation (1,300.000) (1,540,000)
$4038,000 $4236,000
Short-term debt 250,000 224,000
Accrued liabilities 137,428 233,183
Asset retirement obligations 13,727 20,904
Bonds payable, net 748,845 545,913 Common stock (S1 par value) 100,000 100,000 Additional paid-in-capital, common stock 1,925,000 1,925,000 Retained earnings 863,000 1,187,000
$4038,000 $4236,000
Sales $4,500,000
Operating expenses 3,800,000
Other gains/losses, net 5,517
Interest expense 23,000
Income before taxes 671,483
Income tax expense 147,483
Net income $524,000
Point 1: During 2019, G recorded a $10,000 impairment loss on one of its plant assets.
Point 2: On 01-01-17. G purchased a machine for $100,000. G started using the machine on 01-01-17. G estimates it will use the machine for 5 years. At the end of the 5th year, G will have to dispose of the machine at an estimated cost of $15,000. Assume as of 01-01-17 the interest rate on US Treasury securities was 1% and G's credit standing required a 2% risk premium.
Point 3: On 01-01-19. G purchased a machine for $80,000. G started using the machine on 01-01-19. G estimates it will use the machine for 4 years. At the end of the 4th year, G will have to dispose of the machine at an estimated cost of $7,500. Assume as of 01-01-19 the interest rate on US Treasury securities was 1.25% and G's credit standing required a 2.25% risk premium.
Point 4: On 12-31-15, G issued $350,000 of its 4%, 5-year term bonds. The bonds pay interest every 06-30 and 12-31. At the time G issued the bonds, similar bonds paid 4% interest. At the time of issuance, G incurred and paid $4,000 of bond issuance costs.
Point 5:On 12-31-16, G issued $400,000 of its 4.25%, 6-year term bonds. The bonds pay interest every 06-30 and 12-31. At the time G issued the bonds, similar bonds paid 4%. At the time of issuance, G incurred and paid $4,500 of bond issuance costs. On 06-30-19, after making its semi-annual interest payment, G retired the bonds at 99.
Point 6:On 12-31-19, G issued $200,000 of its 3%, 3-year term bonds. The bonds pay interest every 06-30 and 12-31. At the time G issued the bonds, similar bonds paid 3.25% interest. At the time of issuance, G incurred and paid $1,800 of bond issuance costs.
Point 7: During 2019, G declared and distributed cash dividends on its outstanding common stock.
Point 8: On G's income statement, the "operating expenses" caption includes, but is not limited to, depreciation AND accretion expenses.
Point 9: G's interest expense reported on its income statement is only on money borrowed on both a short-term and long-term basis.
Point 10: On G's income statement, the "Other gains/losses, net" caption represents any gains/losses on bond retirements and any impairment losses.
Point 11: G records adjusting journal entries only once a year as of year-end.
Requirement 1: Prepare G's statement of cash flows using the indirect method for the year ended 12-31-19. Label each section amount as cash provided by OR cash used in. Make sure the description of the items within each section are clear.