Question 5.
“Look how great we are doing,” said Sawyer Mittlestaedt, president of Elliott Company. “Our sales have grown from $1.6 million to $2.0 million this year, we about doubled our warehouse space, and we have more cash in the bank than we started with. A few more years of growth like this and we’ll be tops in the industry.”
“Yes, our statements look pretty good,” replied Endia Bush, the company’s vice president for finance. “But I have concerns that we’re doing business with a lot of companies we don’t know much about. But I do agree, we’re certainly selling a lot of merchandise; our inventory is actually down from last year.”
See statements on next page.
Elliott Company
Comparative Balance Sheets
At December 31, 2015 and 2014
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2015 |
2014 |
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Assets |
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|
|
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Current assets: |
|
|
|
|
Cash. |
$42,000 |
$ 27,000 |
15000 incr |
|
Marketable securities |
19,000 |
13,000 |
|
|
Accounts receivable. |
710,000 |
530,000 |
|
|
Inventory |
848,000 |
860,000 |
|
|
Prepaid expenses |
10,000 |
5,000 |
|
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Total current assets |
1,435,000 |
1,629,000 |
|
|
Long-term investments |
60,000 |
110,000 |
|
|
Loans to subsidiaries |
130,000 |
80,000 |
|
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Plant and equipment |
3,170,000 |
2,600,000 |
|
|
Less accumulated depreciation |
810,000 |
755,000 |
|
|
Net plant and equipment |
2,360,000 |
1,845,000 |
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|
Patents |
84,000 |
90,000 |
|
|
Total assets |
$4,263,000 |
$3,560,000 |
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|
|
|
|
|
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Liabilities and Stockholders’ Equity |
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|
|
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Current liabilities: |
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|
|
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Accounts payable |
$ 970,000 |
$ 670,000 |
|
|
Accrued liabilities |
65,000 |
82,000 |
|
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Total current liabilities |
1,035,000 |
752,000 |
|
|
Long-term Bonds Payable |
820,000 |
600,000 |
|
|
Notes payable |
95,000 |
80,000 |
|
|
Total liabilities |
1,950,000 |
1,432,000 |
|
|
Stockholders’ equity: |
|
|
|
|
Common stock |
1,740,000 |
1,650,000 |
|
|
Retained earnings . |
573,000 |
478,000 |
|
|
Total stockholders’ equity |
2,313,000 |
2,128,000 |
|
|
Total liabilities and stock |
$4,263,000 |
3,560,000 |
|
Elliott’s income statement for 2015 follows
|
Sales |
|
$2,000,000 |
|
Cost of goods sold |
|
1,300,000 |
|
Gross profit |
|
700,000 |
|
Selling and administrative expenses |
|
490,000 |
|
Net operating income |
|
210,000 |
|
Nonoperating items: |
|
|
|
Gain on sale of investments |
$60,000 |
|
|
Loss on sale of equipment. |
20,000 |
40,000 |
|
Income before taxes |
|
250,000 |
|
Income taxes |
|
80,000 |
|
Net income |
|
$ 170,000 |
The following additional information is available about Elliott’s activities during 2015:
- Cash dividends declared and paid to the common stockholders totaled $75,000.
- Long-term BONDS with a value of $380,000 were repaid during the year.
- Equipment was sold during the year for $70,000. The equipment had cost $130,000 and had $40,000 in accumulated depreciation on the date of sale.
- Long-term investments were sold during the year for $110,000. These investments had cost $50,000 when purchased several years ago.
5-1. Ms. Bush asks you to prepare a statement of cash flow (indirect method) for 2015.
5-2. What is Elliott’s free cash flow? Interpret your findings.
5-3. Is Elliott Corp. doing as well as its CEO believes? Discuss.
Question 7.
Thompson Co. had the following investment transactions during the current year.
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Feb. 6 |
Purchased 1,000 shares of Fernandez Finance Co. for $40 per share plus brokerage costs of $225. Thompson intends to sell these shares when the timing is right to make a gain. |
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Mar. 31 |
Purchased 15 $1,000 face, 8% bonds of Brown Corp. at 97½. They mature in ten years, and interest is paid seminannually on February 1 and August 1. Thompson has the intent and ability to hold these until maturity. Thompson also determines that the difference between effective interest rate amortization and straight-line is immaterial. |
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June 20 |
Received a $2.20 per share dividend on Fernandez Finance Co. shares. |
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August 1 |
Received interest check from Brown Corp. |
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Sept. 4 |
Acquired 4,000 shares of Jurgeson Conglomerate’s stock for $30 per share plus $600 transaction costs. These shares were classified as available-for-sale securities. |
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Dec. 31 |
Market values of Fernandez Finance Co. and Jurgeson Conglomerate stock were $45 and $28 per share, respectively. Brown Corp. bonds were trading at 99. |
1-1. Prepare journal entries with appropriate supporting computations for the year’s transactions.
1-2. Show how each investment would be reported in Thompson’s financial statements…
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