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Chapter 5: Q19Q. (page 238)
Kathleen Battle says, 鈥淩etained earnings should be reported as an asset, since it is earnings which are reinvested in the business.鈥� How would you respond to Battle?
Kathleen Battle is incorrect in saying that retained earnings should be reported as assets.
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Patrick Corporation鈥檚 adjusted trial balance contained the following asset accounts at December 31, 2017: Prepaid Rent \(12,000, Goodwill \)50,000, Franchise Fees Receivable \(2,000, Franchises \)47,000, Patents \(33,000, and Trademarks \)10,000. Prepare the intangible assets section of the balance sheet.
Use the information presented in BE5-14 for Martinez Corporation to compute the net cash used (provided) by financing activities.
BE5-14 (L05) Martinez Corporation engaged in the following cash transactions during 2017.
Sale of land and building $191,000
Purchase of treasury stock 40,000
Purchase of land 37,000
Payment of cash dividend 95,000
Purchase of equipment 53,000
Issuance of common stock 147,000
Retirement of bonds 100,000
Compute the net cash provided (used) by investing activities.
Stowe Company鈥檚 December 31, 2017, trial balance includes the following accounts: Investment in Common Stock \(70,000, Retained Earnings \)114,000, Trademarks \(31,000, Preferred Stock \)152,000, Common Stock \(55,000, Deferred Income Taxes \)88,000, Paid-in Capital in Excess of Par鈥擟ommon Stock \(174,000, and Noncontrolling Interest \)63,000. Prepare the stockholders鈥� equity section of the balance sheet.
The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2017 appear below.
MADRASAH CORPORATION | |||
BALANCE SHEETS | |||
Assets | Dec 31, 2017 | Jan 1, 2017 | Inc./Dec. |
Cash | \(20,000 | \)13,000 | \(7,000 Inc. |
Accounts receivable | 106,000 | 88,000 | 18,000 Inc. |
Equipment | 39,000 | 22,000 | 17,000 Inc. |
Less: Accumulated depreciation 鈥� Equipment | 17,000 | 11,000 | 6,000 Inc. |
Total | \)148,000 | \(112,000 | |
Liabilities and Stockholder鈥檚 equity | |||
Account payable | \)20,000 | \(15,000 | 5,000 Inc. |
Common stock | 100,000 | 80,000 | 20,000 Inc. |
Retained earnings | 28,000 | 17,000 | 11,000 Inc. |
Total | \)148,000 | \(112,000 |
Net income of \)44,000 was reported, and dividends of $33,000 were paid in 2017. New equipment was purchased and none was sold.
Instructions
(a) Prepare a statement of cash flows for the year 2017.
(b) Compute the current ratio (current assets 梅 current liabilities) as of January 1, 2017, and December 31, 2017, and compute free cash flow for the year 2017.
(c) In light of the analysis in (b), comment on Madrasah鈥檚 liquidity and financial flexibility.
Ames Company reported 2017 net income of \(151,000. During 2017, accounts receivable increased by \)13,000 and accounts payable increased by \(9,500. Depreciation expense was \)44,000. Prepare the cash flows from operating activities section of the statement of cash flows.
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