Seminar Practice 5 Answers Updated

8/22/2019 Seminar Practice 5 Answers Updated

1/41

Presenters : Sebastian, Shaya, Xinwei,

Gordon

Seminar Practice 5


2/41

Jackson Publishing Inc, publishes 2 newspapers and, until recently,

owned a baseball team. The team had been losing money for severalyears and was sold at end 2011 to a group of investors who plan to movethe team. Also in 2011, JPI suffered an extraordinary loss when itsRaytown printing plan was damaged by a tornado and has been repaired.

Net Revenue $41,000,000

Cost and Expenses $36,500,000

Income from continuing operations $4,500,000

Discontinued operations:

($1,300,000)

$4,700,000 $3,400,000

Income before extraordinary items $7,900,000

Extraordinary Loss:

($600,000)

Net Income $7,300,000

JACKSON PUBLISHING, INC.

INCOME STATEMENT

FOR THE YEAR ENDED DEC 31, 2011

Operating loss on baseball team

Tornado damage to Raytown printing plant

Gain on sale of baseball team


3/41

What would JPIs net income have been for 2011 if it had notsoldthe baseball team?

Net Revenue $41,000,000

Cost and Expenses $36,500,000


($1,300,000)


Extraordinary Loss:

($600,000)



INCOME STATEMENT


Tornado damage to Raytown printing plant


-JPI did not sold off the baseball team so there will be noGainon sale of baseball team in the income statement.


4/41

Assume that in 2012, 7% increase in the profit of JPIs newspaperbusiness but projected a $2,000,000 operating loss for the baseballteam if JPI continued to operate the team. Forecast the amount of netincome for 2012 if JPI still continue to own and operate the team.

For 2011, the income from continuing operations = $4,500,000

For 2012, the income due to 7% increase = (7% * $4,500,000) + $4,500,000= $315,000 + $4,500,000= $4,815,000


5/41

Net Revenue $$$$$$

Cost and Expenses $$$$$$


($2,000,000)




INCOME STATEMENT



Also in 2012, No extraordinary loss as the repair was done in 2011

Projected operating loss for the team is $2,000,000 due to theteam still in operation


6/41

Given the assumptions in part b, but given that JPI did sellthe baseball team in 2011, what will be estimated netincome for 2012?

-No operating loss as the team is being sold - $0-Income still maintain at 7% increase - $4,815,000

Net Revenue $$$$$$

Cost and Expenses $$$$$$





INCOME STATEMENT



7/41

Assume that the expenses of operating the team in 2011amounted to $32,200,000, net of any related income taxeffects. Whats was the teams net revenue for the year?

-Baseball team is still operating under JPI.-Operating expenses is $32,200,000.

Revenue Operating Expenses = Operating Income (Loss/Gain)Revenue - $32,200,000 = -$1,300,000 (Loss)Revenue = $32,200,000 - $1,300,000Revenue = $30,900,000


8/41


9/41

The following transactions and events occurred during the year.Assuming that this company uses the indirect methodto reportcash provided by operating activities, indicate where each itemwould appear on its statement of cash flows by placing an X inthe appropriate column. If there are more than one answer dueto the consideration of FRS 7, indicate clearly in your answers.


10/41

Statement of Cash FlowsOperating

ActivitiesInvesting Activities Financing Activities Noncash

Investing/FinancingActivities

a. Paid cash to purchaseinventory

b. Purchase land by issuingcommon stock(a single transaction)

c. Accounts receivabledecreased in the year.

d. Sold equipment for cash,yielding a loss.

e. Recorded depreciationexpense.

f. Income taxes payableincreased in the year.

g. Declared and paid a cashdividend.

h. Accounts payable decreasedin the year.

i. Paid cash to settle bondpayable.

j. Prepaid expenses increasedin the year.


11/41

*What?

*Provides information about the cash receipts and cashpayments of the business entity during the accounting period.


12/41

*Companys ability to generate positive cash flows in thefuture periods.

*Companys ability to meet its obligations and to pay dividends

*Companys need for external financing

*Reasons for differences between the net income and therelated net cash flows from operating activities.

*Both the cash and non-cash aspects of the companys

investment and financial transactions for the period.*Causes of the change in the amount of cash and cash

equivalent between the beginning and the end of theaccounting period.


13/41

*In the statement of cash flows, information about the cashreceipts and cash payments is classified in terms ofcompanys operating activities, investing activities, and

financing activities.


14/41

*shows the cash effects of revenue and expense transactions.It also means it includes cash effects of those transactionsreported in continuing operations section of incomestatements.


15/41

Inflows Outflows

Receipts from customers Payments to suppliers

Receipts from investments

(Dividends received*)

Payments to employees

Receipts from investments(Interest received*)

Payments to lenders(Interest paid*)

Payments to government(Taxes paid*)

Payments to shareholders(Dividends paid*)

* FRS 7: alternative method of classification


16/41

*Cash flows relating to investing activities present the casheffects of transactions involving plan assets, intangibleassets, and investments.

Inflows Outflows

Sales of noncurrent assets Purchase noncurrent assets

Sales of marketablesecurities (equity & debtinvestments)

Purchase marketablesecurities (equity & debtinvestments)

Collect principal on notesreceivable

Extend loans


17/41

*Cash flows relating to financial activities include items thatresults from debt and equity financing transactions. Itproceeds from a companys issuance of its own stock orbonds, borrowings under loans, and so forth.

Inflows Outflows

Shares issuance Purchase treasury stock

Bonds placement Repay borrowings(principal)

Short-term and long-termborrowings from banks


18/41

*Some financial and investing activities occur withoutconsuming cash. These transactions do not entail a directinflow or outflow of cash; they do pertain to significant

investing and/or financing events.


19/41

Statement of Cash FlowsOperating

ActivitiesInvesting Activities Financing Activities Noncash


a. Paid cash to purchaseinventory

b. Purchase land by issuingcommon stock(a single transaction)

c. Accounts receivabledecreased in the year.

d. Sold equipment for cash,yielding a loss.

e. Recorded depreciationexpense.


g. Declared and paid a cashdividend.

h. Accounts payable decreasedin the year.

i. Paid cash to settle bondpayable.

j. Prepaid expenses increasedin the year.


20/41

*

a. Paid cash to purchase inventory.

This falls under cash paid to purchase merchandise, which iscash paid to suppliers. Hence it falls under operating

activities.b. Purchase land by issuing common stock ( a singletransaction)

This falls under the non-cash investing, where a companyexchanges common stock for land which does not entail adirect inflow or outflow of cash.


21/41

c. Accounts receivable decreased in a year

*It falls under cash received from customers; hence it is cashflows from operating activities. When the accounts receivabledecrease from customers, we add the decrease in accounts

receivable to the net sales to determine the amount of cashreceived during the year. The collection of account receivablesexceeds the credit sales.

*


22/41

d. Sold equipment for cash, yielding a loss

*It falls under cash flow from operating activities in accordanceto the indirect method. Loss on sale of plant assets.

e. Recorded depreciation expense

*It falls under cash flow from operating activities in accordanceto the indirect method. Depreciation from non cash items.

*


23/41

f. Income taxes payable increased in a year

*It falls under operating activities according to FRS method ofclassifications.

g. Declared and paid a cash dividend*It falls under operating activities according to FRS method ofclassifications. It could also fall under cash flows from financingactivities as it involves debit and credit changes during theperiod of liability and stockholders equity accounts.

*


24/41

h. Account payable decreased in a year.

*It falls under cash paid for purchase of merchandise; hence itis cash flows from operating activities.

I. Paid cash to settle bond payable.

*It falls under cash flow from financing activities, as it involvesequity financing transactions.

j. Prepaid expenses increased in a year

*It falls under cash payments for expenses; hence it falls undercash outflows from operating activities.

*

Statement o Cas F owsN h


25/41

Operating

ActivitiesInvesting

ActivitiesFinancing Activities Noncash


a. Paid cash to purchaseinventory Xb. Purchase land by issuingcommon stock(a single transaction)

Xc. Accounts receivabledecreased in the year. Xd. Sold equipment for cash,yielding a loss. X(indirect) X(cash

proceed)e. Recorded depreciationexpense. X(indirect)


X(FRS)

g. Declared and paid a cashdividend. X(FRS) Xh. Accounts payabledecreased in the year. Xi. Paid cash to settle bondpayable. Xj. Prepaid expenses increasedin the year. X

Q ti 3


26/41

Question 3

Wofford Company provides the following information related to its investing and

financing activities for the current year:

Cash receipts:Sale of common stock $250,000Sale of equipment (at $34,000 loss) $156,000Sale of land (at $50,000 gain)$160,000

Cash payments:Purchase of equipment

$178,000Purchase of treasury stock ...$ 45,000Retirement of debt .$ 36,500Dividends on preferred and common stock .

$ 75,000


27/41

a. Calculate the net amount of cash provided by or

used for investing activities for the year.

Investing activities are:Sale of equipment (at $34,000 loss) $156,000 (+)Sale of land (at $50,000 gain) $160,000 (+)

Purchase of equipment $178,000 (-)

Net amount of cash used for or provided by investing activities= 156,000 + 160,000 178,000= $ 138, 000


28/41

b. What impact, if any, do the following facts have

on your calculation? (1) Equipment was sold at a

loss, and (2) land was sold at a gain.

It does not have any impact on the calculation for the investing

activities as the gain and losses of the sales are to be recorded inthe operating activities


29/41

c. Briefly explain your decision to exclude any of

the items listed above if they were not included in

your calculation in part a.

The below items belongs in financing activities therefore are not

included in the calculation of part a:

Sales of common stockPurchase of treasury stockRetirement of debtDividends on preferred and common stocks

Question 4


30/41

Question 4Shepherd Industries had the following cash flows by major categories during

the current year:

Cash provided by:Receipts from customer $560,000

Sale of bonds $400,000Sale of treasury stock . $ 34,000Interest and dividends received . $ 56,000Sale of equipment (at a $56,000 loss) .. $236,000

Cash used for:Payments to employees $135,000

Payments to purchase inventory. $190,000Dividends on common stock. $ 60,000Purchase of treasury stock ... $ 20,000Interest expense .. $ 78,000


31/41

a. Calculate the net amount of cash provided by or

used for financing activities for the year.

Financing activities are:Sale of bonds $400,000 (+)Sale of treasury stocks $ 34,000 (+)Dividends on common stock $ 60,000 (-)Purchase of treasury stock $ 20,000 (-)

Net amount of cash used for or provided by financing activities= 400,000 + 34,000 60,000 20,000= $354,000


32/41

Statement of Cash Flows (Q3 S1 2010-11)The following selected balance sheet and income statement data and additional

information for Kings & Co. are presented below.Additional information:

(1) The only items affecting retained earnings in 2010 were net income and dividendsdeclared and paid.

(2) Equipment with a cost of $30,000 and an accumulated depreciation of $12,000 wassold for $22,000 during 2010.


33/41

(a) Prepare the operating activities section of a statement ofcash flows for Kings & Co. for 2010 using the indirect methodand in accordance with FRS 7.

Indirectmethod

FRS 7

Explain why the net cash flows fromoperating activities differ from anothermeasurement of performance- net income

Cash flows arising from taxes on income shall beseparately disclosed and shall be classified as cashflows from operating activities unless they can bespecifically identified with financing and investingactivities.

Cash flows from interest and dividends receivedand paid shall each be disclosed separately. Eachshall be classified in a consistent manner from periodto period as either operating, investing or financingactivities.

Source: http://www.asc.gov.sg/frs/frsEffective01012013.htm

(a) Prepare the operating activities section of a statement of
http://www.asc.gov.sg/frs/frsEffective01012013.htmhttp://www.asc.gov.sg/frs/frsEffective01012013.htm


34/41


King & Co.

Statement of cash flows

for the year ended Dec 31, 2010

$

Cash flow from operating activies:

Pre-tax income 62,000

(1) Gain or losses relating to non-operating activitiesGain on sale of equipment -4000

(2) Non cash items

Depreciation 8000

(3) changes in working capital

Decrease in accounts receivable 30,000

Increase in inventories -6000

Decrease in accounts payable -32,000

(4) Items that require separate disclosure per FRS7

Dividend paid -20,000

Income tax paid -5000

Cash flow from operating activies: 33,000



35/41


Book value of equipment= Cost accumulated depreciation= $30,000 - $12,000

= $18,000Equipment sold for $22,000Hence, Gain on sale of equipment= $22,000 - $18,000

= $4000

King & Co.

Statement of cash flows

for the year ended Dec 31, 2010

$

Cash flow from operating activies:

Pre-tax income 62,000

(1) Gain or losses relating to non-operating activities

Gain on sale of equipment -4000



36/41


Decrease in account receivable

Accounts receivable

2010 $ 2010 $

Jan-01 Bal bld 150,000 Dec-31 Cash 30,000Dec-31 Bal c/d 120,000

150,000 150,000

2011

Jan-01 Bal b/d 120,000

(2) Non cash items

Depreciation 8000

(3) changes in working capital

Decrease in accounts receivable 30,000





37/41


Increase in inventories

Inventories account

2010 $ 2010 $

Jan-01 Bal bld 50,000

Dec-31 cash 6000 Dec-31 Bal c/d 56,000

56,000 56,000

2011

Jan-01 Bal b/d 56,000

(3) changes in working capitalDecrease in accounts receivable 30,000





38/41


Decrease in accountspayable

Accounts payable

2010 $ 2010 $

Dec-31 cash 32,000 Jan-01 Bal bld 70,000Dec-31 Bal c/d 38,000

70,000 70,000

2011


(3) changes in working capitalDecrease in accounts receivable 30,000





39/41


Retained earnings, Jan 1 $40,000

Add: Net income $62,000- $6000= $56000

Less: Dividends ?

Retained earning, Dec 31 76,000

Dividends declared and paid= $40,000+ $56,000 -$76,000= $20,000

Dividend paid







40/41


Tax payable

2010 $ 2010 $

Dec-31 cash 5,000 Jan-01 Bal bld 2,000

Dec-31 Bal c/d 3,000 Dec-31 tax expense 6,000

8,000 8,000

2011


Income tax paid





(b) M f Ki & C i l i i h


41/41

(b) Management of Kings & Co. is exploring ways to increase thecash flows from operations. Describe three ways that cash flowsfrom operations could be increased.

1. The management could increase the collection of account

receivables.

2. Keep inventory low so that cash will not be held up in

inventory

3. Delay payment of liabilities so that not all cash will go

towards payment of account payable

Documents

Seminar Practice 5 Answers Updated