Question

MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013 2014 2013 Cash $10,860 $3,180 13,420 Accounts receivable 21,480 Short-term investments 21,350 31,200 Inventory 41,410 36,550 Prepaid rent Prepaid insurance Supplies 2,640 13,420 2,810 940 1,360 770 Land 124,560 172,800 Buildings Accumulated depreciation-buildings 350,170 350,170 (105,080) (88,410) Equipment 524,950 400,440 Accumulated depreciation-equipment (130,130) (113,160) 51,700 Patents 45,090 Total assets $911,470 $873,020 Accounts payable Income taxes payable Salaries and wages payable Short-term notes payable Long-term notes payable Bonds payable Premium on bonds payable Common stock Paid-in capital in excess of par-common stock $22,140 $31,620 5,600 4,210 5,810 3,940 10,310 10,310 60,880 70,430 400,420 400,420 16,324 25,220 240,200 219,670 25,956 17,880 Retained earnings Total liabilities and stockholders' equity 123,830 89,320 $911,470 $873,020 MICHAEL S COMPANY INCOME STATEMENT AND DIVIDEND INFORMATION FOR THE YEAR ENDED DECCEMBER 31, 2014 Sales revenue Cost of goods sold $1,160,530 748,380 412,150 Gross margin Operating expenses Selling expenses Administrative expenses $79,670 157,360 Depreciation/Amortization expense Total operating expenses Income from operations Other revenues/expenses 40,250 277,280 134,870 Gain on sale of land 8,970 Gain on sale of short-term investment 4,080 Dividend revenue 2,810 Interest expense (52,730 (36,870 Income before taxes 98,000 Income tax expense 39,450 Net income 58,550 Dividends to common stockholders (24,040) To retained earnings $34,510

Answer 1

Solution MICHAELS COMPANY Statement of Cash Flows For the Year Ended December 31, 2014 (Direct Method) Cash flows from Operating Activities: Cash receipts: Cash received from customers (WN-1) $1,152,470 Dividends Received $2,810 $1,155,280 Cash payments: Cash paid to suppliers (WN-2) Cash paid for operating expenses (WN Taxes paid (WN-4) Interest paid (WN-5) ($762,720) ($226,840) ($38,060) ($61,626) ($1,089,246) $66,034 Net cash provided by operating activities Cash flows from Investing Activities: Sale of short-term investments ($31,200- $21,350+$4,080) Sale of land ($172,800-$124,560 + $8,970) Purchase of equipment ($524,950- $400,440) Net cash used by investing activities $13,930 $57,210 ($124,510) ($53,370) Cash flows from Financing Activities: $28,606 ($9,550) ($24,040) Proceeds from issuance of common stock (WN-6) Principal payment of Long-term debt ($70,430 - $60,880) Dividends paid Net cash used by financing activities Net increase in cash Cash, January 1, 2014 Cash, December 31, 2014 ($4,984) $7,680 $3,180 $10,860 Reconciliation Schedule Reconciliation of net income to Net cash provided by operating activities $58,550 Net Income Adjustments to reconcile net income to Net cash provided by operating activities Increase in Income Taxes Payable ($5,600-$4,210) $1,390 Increase in Salaries and Wages Payable ($5,810-$3,940) $1,870 (S8,060) $40,250 $10,780 Increase in Accounts Receivables ($21,480 - $13,420) Depreciation/Amortization expense Decrease in Prepaid Rent ($13,420- $2,640) Increase in Inventory ($41,410 - $36,550) ($4,860) ($1,870) Increase in Prepaid Insurance ($2,810-940) Increase in Supplies ($1,360-770) Decrease in Accounts Payable ($31,620- $22,140) ($590) ($9,480) ($8,970) ($4,080) Gain on sale of land Gain on sale of short term Investments Amortization of Bond premium ($25,220- $16,324) Total adjustments Net cash provided by operating activities ($8,896) $7,484 $66,034

WN-1: Cash received from customers Sales Revenue $1,160,530 Add: Beginning Accounts Receivable Less: Ending Accounts Receivable $13,420 ($21,480) $1,152,470 Cash Collections from customers WN-2 Cash payments to suppliers Cost of Goods Sold $748,380 Add: Ending Merchandise Inventories $41,410 ($36,550) $753,240 Less: Beginning Merchandise Inventories Purchases Add: Beginning Accounts Payables $31,620 ($22,140) $762,720 Less: Ending Accounts Payables Cash payments to suppliers WN-3 : Cash paid for operating expenses Selling expenses $79,670 Administration expenses $157,360 Add: Ending Prepaid Rent $2,640 Less: Beginning Prepaid Rent ($13,420) Add: Ending Prepaid Insurance $2,810 Less: Beginning Prepaid Insurance ($940) Add: Ending Supplies $1,360 Less: Beginning Supplies ($770) $228,710 Add: beginning Salaries and wages payable $3,940 Less: Ending salaries and wages payable Cash paid for operating expenses ($5,810) $226,840 WN-4 Cash payments for Income taxes Income tax expense $39,450 Add: Beginning Income Tax payables $4,210 Less: Ending Income Tax payables ($5,600) $38,060 Cash payments for Income taxes WN-5 Cash payments for Interest Interest expense $52,730 Add: Bond Premium Amortization ($25,220-$16,324) $8,896 Cash paid for interest $61,626 WN-6 Proceeds from issuance of common stock Ending Balance, Common stock Ending Balance, Paid in capital in excess of Par-Common Stock $240,200 $25,956 Less: Beginning Balance, Common stock ($219,670) Less: Beginning Balance, Paid in capital in excess of Par-Common Stock ($17,880) $28,606 Proceeds from issuance of common stock