Ross4eChap02sm

# Ross4eChap02sm - Chapter 2: Accounting Statements and Cash...

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Chapter 2: Accounting Statements and Cash Flow 2.1 Assets Current assets Cash \$ 4,000 Accounts receivable 8,000 Total current assets \$ 12,000 Long-tern assets Machinery \$34,000 Patents 82,000 Total long-term assets \$116,000 Total assets \$128,000 Liabilities and equity Current liabilities Accounts payable \$ 6,000 Taxes payable 2,000 Total current liabilities \$ 8,000 Long-term liabilities Bonds payable \$7,000 Stockholders equity Preferred stock \$19,000 Common stock 88,000 Retained earnings 6,000 Total stockholders equity \$113,000 Total liabilities and equity \$128,000 2.2 One year ago Today Long-term debt \$50,000,000 \$50,000,000 Preferred stock 30,000,000 30,000,000 Common stock 100,000,000 110,000,000 Retained earnings 20,000,000 22,000,000 Total \$200,000,000 \$212,000,000 2.3 Income Statement Total operating revenues \$500,000 Less: Cost of goods sold \$200,000 Administrative expenses 100,000 300,000 Earnings before interest and taxes \$200,000 Less: Interest expense 50,000 Earnings before taxes \$150,000 Taxes 60,000 Net income \$90,000 Answers to End-of-Chapter Problems B-6

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2.4 a. Income Statement The Flying Lion Corporation 2004 2005 Net sales \$800,000 \$500,000 Cost of goods sold (560,000) (320,000) Operating expenses (75,000) (56,000) Depreciation (300,000) (200,000) Earnings before taxes \$(135,000) \$(76,000) Taxes* 54,000 30,400 Net income \$(81,000) \$(45,600) * The problem states that Flying Lion has other profitable operations. Flying Lion can take advantage of tax losses by deducting the tax liabilities in the other operations that have taxable profits. If Flying Lion did not have other operations and tax losses could not be carried forward or backward, then taxes in each of these years would have been zero. b. Cash flow during 2002 = -\$81,000 + \$300,000 = \$219,000 Cash flow during 2005 = -\$45,600+ \$200,000 = \$154,400 2.5 The main difference between accounting profit and cash flow is that non-cash costs, such as depreciation expense, are included in accounting profits. Cash flows do not consider costs that do not represent actual cash expenditures. Cash flows deduct the entire cost of an investment at the time the cash flow occurs. 2.6 a.Net operating income = Sales - Cost of goods sold - Selling expenses - Depreciation = \$1,000,000 - \$300,000 - \$200,000 - \$100,000 = \$400,000 b.Earnings before taxes = Net operating income - Interest expense = \$400,000 - 0.10 (\$1,000,000) = \$300,000 c.Net income = Earnings before taxes - Taxes = \$300,000 - 0.40 (\$300,000) = \$180,000 d.Cash flow from operations = Net income + Depreciation + Interest expense = \$180,000 + \$100,000 + \$100,000 = \$380,000 Answers to End-of-Chapter Problems B-7
2.7 Statement of Cash Flows The Stancil Corporation

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## Ross4eChap02sm - Chapter 2: Accounting Statements and Cash...

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