Reference no: EM131093307

 1. (Computation of Present Value) Using the appropriate interest table, compute the present values of the following periodic amountsdue at the end of the designated periods.

1. $30,000 receivable at the end of each period for 8 periods compounded at 12%.                                                                         2. $30,000 payments to be made at the end of each period for 16 periods at 9%.      

3.$30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.

2. (Unknown Periods and Unknown Interest Rate) Consider the following independent situations.

1. Mike Finley wishes to become a millionaire. His money market fund has a balance of $92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired $1,000,000?

2.Assume that Serena Williams desires to accumulate $1 million in 15 years using her money market fund balance of $182,696. At what interest rate must Serena's investment compound annually?

3.(SCF-Indirect Method) Condensed financial data of Pat Metheny Company for 2008 and 2007 are presented.

PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2008 AND 2007

 

	2008	2007
Cash	$1,800	$1,150
Receivables	1,750	1,300
Inventory	1,600	1,900
Plant assets	1,900	1,700
Accumulated depreciation	(1,200)	(1,170)
Long-term investments (Held-to-maturity)	1,300	1,420
	$7,150	$6,300
Accounts payable	$1,200	$  900
Accrued liabilities	200	250
Bonds payable	1,400	1,550
Capital stock	1,900	1,700
Retained earnings	2,450	1,900
	$7,150	$6,300

 

PAT METHENY COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2008

 

Sales	$6,900
Cost of goods sold	4,700
Gross margin	2,200
Selling and administrative expense	930
Income from operations	1,270
Other revenues and gains
Gain on sale of investments	80
Income before tax	1,350
Income tax expense	540
Net income	810
Cash dividends	260
Income retained in business	$  550

 

Additional information: During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2008.

Instructions

 Prepare a statement of cash flows using the indirect method.

4.  (SCF-Direct Method) Data for Pat Metheny Company are presented in E23-11

Instructions

 Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)

 P23-7  (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.

 

GEORGE WINSTON COMPANY
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF MAY 31

 

	2008	2007
Current assets
Cash	$ 33,250	$ 20,000
Accounts receivable	80,000	58,000
Merchandise inventory	210,000	250,000
Prepaid expenses	9,000	7,000
Total current assets	332,250	335,000

 

Plant assets
Plant assets	600,000	502,000
Less: Accumulated depreciation	150,000	125,000
Net plant assets	450,000	377,000
Total assets	$782,250	$712,000

 

Current liabilities
Accounts payable	$123,000	$115,000
Salaries payable	47,250	72,000
Interest payable	27,000	25,000
Total current liabilities	197,250	212,000

 

Long-term debt
Bonds payable	70,000	100,000
Total liabilities	267,250	312,000
Shareholders' equity
Common stock, $10 par	370,000	280,000
Retained earnings	145,000	120,000
Total shareholders' equity	515,000	400,000
Total liabilities and shareholders' equity	$782,250	$712,000

 

GEORGE WINSTON COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2008

 

Sales	$1,255,250
Cost of merchandise sold	722,000
Gross profit	533,250
Expenses
Salary expense	252,100
Interest expense	75,000
Other expenses	8,150
Depreciation expense	25,000
Total expenses	360,250
Operating income	173,000
Income tax expense	43,000
Net income	$ 130,000

The following is additional information concerning Winston's transactions during the year ended May 31, 2008.

1. All sales during the year were made on account.

2. All merchandise was purchased on account, comprising the total accounts payable account.

3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.

4. The "other expenses" are related to prepaid items.

5. All income taxes incurred during the year were paid during the year.

6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.

7. There were no penalties assessed for the retirement of bonds.

8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.

Instructions

a. Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.

b. Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)