Problem 23-4 MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2014

ID: 2475753 • Letter: P

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Problem 23-4

MICHAELS COMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2014 AND 2013

2014

2013

$10,100

$3,960

20,620

13,950

21,290

31,710

41,430

36,490

2,370

13,100

2,640

920

1,070

830

124,090

172,910

350,380

(105,510

(88,330

524,840

400,210

(130,870

(113,580

45,080

51,150

$907,530

$873,700

$22,130

$31,970

5,020

4,760

5,030

3,630

10,300

60,670

70,550

400,440

13,842

25,430

240,540

219,170

25,878

18,380

123,680

89,070

$907,530

$873,700

MICHAEL S COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2014

$1,160,560

748,300

412,260

$80,160

156,760

40,540

277,460

134,800

8,930

4,670

3,370

(52,640

(35,670

99,130

40,000

59,130

(24,520

$34,610

MICHAELS COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
(Direct Method)

Reconciliation Schedule

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Problem 23-4

Michaels Company had the following information available at the end of 2014.

MICHAELS COMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2014 AND 2013

2014

2013

Cash

$10,100

$3,960

Accounts receivable

20,620

13,950

Short-term investments

21,290

31,710

Inventory

41,430

36,490

Prepaid rent

2,370

13,100

Prepaid insurance

2,640

920

Supplies

1,070

830

Land

124,090

172,910

Buildings

350,380

Accumulated depreciation—buildings

(105,510

)

(88,330

) Equipment

524,840

400,210

Accumulated depreciation—equipment

(130,870

)

(113,580

) Patents

45,080

51,150

Total assets

$907,530

$873,700

Accounts payable

$22,130

$31,970

Income taxes payable

5,020

4,760

Salaries and wages payable

5,030

3,630

Short-term notes payable

10,300

Long-term notes payable

60,670

70,550

Bonds payable

400,440

Premium on bonds payable

13,842

25,430

Common stock

240,540

219,170

Paid-in capital in excess of par—common stock

25,878

18,380

Retained earnings

123,680

89,070

Total liabilities and stockholders’ equity

$907,530

$873,700

MICHAEL S COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue

$1,160,560

Cost of goods sold

748,300

412,260

Gross margin Operating expenses Selling expenses

$80,160

Administrative expenses

156,760

Depreciation/Amortization expense

40,540

Total operating expenses

277,460

Income from operations

134,800

Other revenues/expenses Gain on sale of land

8,930

Gain on sale of short-term investment

4,670

Dividend revenue

3,370

Interest expense

(52,640

)

(35,670

) Income before taxes

99,130

Income tax expense

40,000

Net income

59,130

Dividends to common stockholders

(24,520

) To retained earnings

$34,610

Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are classified as available-for-sale. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

MICHAELS COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2014
(Direct Method)

Cash, January 1, 2014Cash, December 31, 2014Cash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in Cash

Cash receipts:

Dividends Paid Cash Received from Customers Interest Paid Sale of Land Sale of Short-Term Investments Dividends Received Cash Paid for Operating Expenses Taxes Paid Purchase of Equipment Proceeds from Issuance of Common Stock Principal Payment on Long-Term Debt Purchase of Land Purchase of Short-Term Investments Cash Paid to Suppliers

Purchase of Equipment Dividends Received Proceeds from Issuance of Common Stock Sale of Short-Term Investments Cash Paid to Suppliers Cash Paid for Operating Expenses Taxes Paid Principal Payment on Long-Term Debt Interest Paid Dividends Paid Purchase of Land Sale of Land Purchase of Short-Term Investments Cash Received from Customers

Cash payments:

Purchase of Short-Term Investments Dividends Received Purchase of Equipment Interest Paid Principal Payment on Long-Term Debt Purchase of Land Dividends Paid Cash Paid to Suppliers Cash Paid for Operating Expenses Proceeds from Issuance of Common Stock Cash Received from Customers Taxes Paid Sale of Short-Term Investments Sale of Land

Sale of Land Cash Received from Customers Dividends Received Purchase of Short-Term Investments Sale of Short-Term Investments Cash Paid to Suppliers Cash Paid for Operating Expenses Taxes Paid Principal Payment on Long-Term Debt Dividends Paid Interest Paid Purchase of Land Purchase of Equipment Proceeds from Issuance of Common Stock

Cash Received from Customers Dividends Paid Principal Payment on Long-Term Debt Dividends Received Purchase of Land Purchase of Short-Term Investments Cash Paid to Suppliers Cash Paid for Operating Expenses Purchase of Equipment Taxes Paid Sale of Land Proceeds from Issuance of Common Stock Interest Paid Sale of Short-Term Investments

Sale of Land Cash Paid for Operating Expenses Sale of Short-Term Investments Purchase of Equipment Taxes Paid Proceeds from Issuance of Common Stock Principal Payment on Long-Term Debt Interest Paid Dividends Paid Purchase of Land Purchase of Short-Term Investments Cash Received from Customers Dividends Received Cash Paid to Suppliers

Cash Paid for Operating Expenses Principal Payment on Long-Term Debt Cash Paid to Suppliers Taxes Paid Interest Paid Sale of Short-Term Investments Proceeds from Issuance of Common Stock Sale of Land Purchase of Equipment Dividends Paid Purchase of Land Purchase of Short-Term Investments Cash Received from Customers Dividends Received

Cash Paid for Operating Expenses Proceeds from Issuance of Common Stock Dividends Paid Dividends Received Purchase of Equipment Principal Payment on Long-Term Debt Cash Received from Customers Purchase of Land Taxes Paid Interest Paid Purchase of Short-Term Investments Cash Paid to Suppliers Sale of Short-Term Investments Sale of Land

Dividends Received Cash Received from Customers Cash Paid to Suppliers Principal Payment on Long-Term Debt Sale of Land Interest Paid Taxes Paid Purchase of Short-Term Investments Purchase of Equipment Proceeds from Issuance of Common Stock Cash Paid for Operating Expenses Sale of Short-Term Investments Dividends Paid Purchase of Land

Cash, January 1, 2014 Cash, December 31, 2014 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash

Purchase of Land Interest Paid Taxes Paid Proceeds from Issuance of Common Stock Purchase of Short-Term Investments Principal Payment on Long-Term Debt Cash Received from Customers Purchase of Equipment Dividends Received Dividends Paid Cash Paid to Suppliers Cash Paid for Operating Expenses Sale of Short-Term Investments Sale of Land

Interest Paid Dividends Paid Taxes Paid Sale of Short-Term Investments Sale of Land Cash Paid for Operating Expenses Proceeds from Issuance of Common Stock Principal Payment on Long-Term Debt Purchase of Equipment Purchase of Land Cash Paid to Suppliers Purchase of Short-Term Investments Cash Received from Customers Dividends Received

Taxes Paid Interest Paid Dividends Received Principal Payment on Long-Term Debt Dividends Paid Sale of Short-Term Investments Purchase of Short-Term Investments Proceeds from Issuance of Common Stock Purchase of Land Sale of Land Purchase of Equipment Cash Paid to Suppliers Cash Received from Customers Cash Paid for Operating Expenses

Cash, January 1, 2014 Cash, December 31, 2014 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash

Reconciliation Schedule

Reconciliation of Net Income to

Decrease in Prepaid Rent Decrease in Accounts Payable Increase in Income Taxes Payable Increase in Prepaid Rent Amortization of Bond Premium Decrease in Salaries and Wages Payable Decrease in Prepaid Insurance Decrease in Income Taxes Payable Gain on Sale of Land Loss on Sale of Short-Term Investments Increase in Salaries and Wages Payable Gain on Sale of Short-Term Investments Increase in Prepaid Insurance Increase in Supplies Decrease in Supplies Increase in Accounts Payable Loss on Sale of Land Increase in Accounts Receivable Net Income Decrease in Accounts Receivable Depreciation/Amortization Expense Increase in Inventory Decrease in Inventory

Adjustments to reconcile net income to

Increase in Inventory Net Income Gain on Sale of Short-Term Investments Depreciation/Amortization Expense Increase in Prepaid Insurance Gain on Sale of Land Increase in Income Taxes Payable Decrease in Accounts Payable Decrease in Inventory Decrease in Income Taxes Payable Decrease in Prepaid Insurance Decrease in Salaries and Wages Payable Increase in Salaries and Wages Payable Decrease in Accounts Receivable Decrease in Supplies Loss on Sale of Short-Term Investments Loss on Sale of Land Increase in Accounts Payable Increase in Supplies Amortization of Bond Premium Decrease in Prepaid Rent Increase in Accounts Receivable Increase in Prepaid Rent

Loss on Sale of Short-Term Investments Increase in Accounts Receivable Decrease in Inventory Amortization of Bond Premium Decrease in Income Taxes Payable Decrease in Prepaid Rent Increase in Prepaid Rent Increase in Inventory Increase in Prepaid Insurance Increase in Accounts Payable Decrease in Prepaid Insurance Increase in Supplies Increase in Income Taxes Payable Net Income Depreciation/Amortization Expense Increase in Salaries and Wages Payable Decrease in Accounts Payable Decrease in Salaries and Wages Payable Decrease in Accounts Receivable Decrease in Supplies Gain on Sale of Land Loss on Sale of Land Gain on Sale of Short-Term Investments

Increase in Prepaid Insurance Gain on Sale of Land Decrease in Prepaid Rent Depreciation/Amortization Expense Decrease in Accounts Receivable Increase in Accounts Payable Decrease in Inventory Amortization of Bond Premium Decrease in Prepaid Insurance Increase in Supplies Increase in Accounts Receivable Decrease in Salaries and Wages Payable Increase in Salaries and Wages Payable Decrease in Accounts Payable Increase in Inventory Net Income Increase in Prepaid Rent Gain on Sale of Short-Term Investments Increase in Income Taxes Payable Decrease in Income Taxes Payable Decrease in Supplies Loss on Sale of Land Loss on Sale of Short-Term Investments

Increase in Salaries and Wages Payable Loss on Sale of Short-Term Investments Decrease in Income Taxes Payable Gain on Sale of Short-Term Investments Increase in Accounts Receivable Increase in Inventory Decrease in Prepaid Insurance Increase in Accounts Payable Increase in Prepaid Insurance Decrease in Inventory Net Income Decrease in Prepaid Rent Depreciation/Amortization Expense Increase in Prepaid Rent Increase in Income Taxes Payable Increase in Supplies Decrease in Salaries and Wages Payable Decrease in Supplies Gain on Sale of Land Loss on Sale of Land Amortization of Bond Premium Decrease in Accounts Payable Decrease in Accounts Receivable

Decrease in Salaries and Wages Payable Increase in Prepaid Rent Increase in Prepaid Insurance Decrease in Prepaid Rent Net Income Increase in Salaries and Wages Payable Increase in Income Taxes Payable Depreciation/Amortization Expense Decrease in Prepaid Insurance Decrease in Income Taxes Payable Increase in Supplies Decrease in Supplies Gain on Sale of Land Loss on Sale of Land Gain on Sale of Short-Term Investments Decrease in Inventory Loss on Sale of Short-Term Investments Amortization of Bond Premium Increase in Accounts Payable Increase in Inventory Decrease in Accounts Payable Increase in Accounts Receivable Decrease in Accounts Receivable

Gain on Sale of Short-Term Investments Decrease in Prepaid Rent Decrease in Inventory Gain on Sale of Land Amortization of Bond Premium Increase in Prepaid Rent Increase in Income Taxes Payable Decrease in Salaries and Wages Payable Loss on Sale of Land Depreciation/Amortization Expense Decrease in Accounts Receivable Decrease in Prepaid Insurance Decrease in Income Taxes Payable Increase in Prepaid Insurance Loss on Sale of Short-Term Investments Decrease in Accounts Payable Increase in Accounts Receivable Increase in Salaries and Wages Payable Increase in Supplies Net Income Increase in Accounts Payable Increase in Inventory Decrease in Supplies

Decrease in Supplies Depreciation/Amortization Expense Increase in Accounts Payable Decrease in Accounts Payable Increase in Supplies Decrease in Accounts Receivable Increase in Inventory Gain on Sale of Land Decrease in Inventory Increase in Accounts Receivable Decrease in Prepaid Rent Increase in Prepaid Insurance Increase in Prepaid Rent Decrease in Salaries and Wages Payable Loss on Sale of Land Increase in Income Taxes Payable Gain on Sale of Short-Term Investments Decrease in Income Taxes Payable Loss on Sale of Short-Term Investments Increase in Salaries and Wages Payable Decrease in Prepaid Insurance Amortization of Bond Premium Net Income

Decrease in Inventory Increase in Inventory Increase in Accounts Payable Increase in Supplies Decrease in Income Taxes Payable Decrease in Accounts Payable Decrease in Accounts Receivable Decrease in Prepaid Rent Increase in Income Taxes Payable Loss on Sale of Land Increase in Salaries and Wages Payable Net Income Decrease in Prepaid Insurance Increase in Prepaid Rent Decrease in Supplies Increase in Accounts Receivable Decrease in Salaries and Wages Payable Loss on Sale of Short-Term Investments Depreciation/Amortization Expense Gain on Sale of Land Increase in Prepaid Insurance Gain on Sale of Short-Term Investments Amortization of Bond Premium

Gain on Sale of Short-Term Investments Decrease in Income Taxes Payable Increase in Supplies Increase in Accounts Receivable Decrease in Inventory Decrease in Accounts Receivable Decrease in Prepaid Rent Increase in Inventory Decrease in Prepaid Insurance Increase in Prepaid Rent Loss on Sale of Short-Term Investments Increase in Income Taxes Payable Decrease in Accounts Payable Increase in Salaries and Wages Payable Decrease in Salaries and Wages Payable Increase in Prepaid Insurance Decrease in Supplies Increase in Accounts Payable Gain on Sale of Land Loss on Sale of Land Depreciation/Amortization Expense Amortization of Bond Premium Net Income

Decrease in Accounts Payable Increase in Income Taxes Payable Depreciation/Amortization Expense Increase in Accounts Payable Decrease in Income Taxes Payable Decrease in Prepaid Insurance Net Income Decrease in Supplies Gain on Sale of Land Increase in Prepaid Insurance Increase in Prepaid Rent Loss on Sale of Land Gain on Sale of Short-Term Investments Increase in Supplies Decrease in Accounts Receivable Increase in Accounts Receivable Increase in Salaries and Wages Payable Increase in Inventory Loss on Sale of Short-Term Investments Decrease in Salaries and Wages Payable Amortization of Bond Premium Decrease in Inventory Decrease in Prepaid Rent

Decrease in Income Taxes Payable Increase in Accounts Payable Increase in Salaries and Wages Payable Gain on Sale of Land Increase in Inventory Decrease in Accounts Payable Decrease in Inventory Loss on Sale of Land Decrease in Prepaid Rent Loss on Sale of Short-Term Investments Increase in Supplies Increase in Prepaid Rent Increase in Income Taxes Payable Gain on Sale of Short-Term Investments Amortization of Bond Premium Increase in Accounts Receivable Decrease in Salaries and Wages Payable Increase in Prepaid Insurance Depreciation/Amortization Expense Decrease in Prepaid Insurance Decrease in Supplies Net Income Decrease in Accounts Receivable

Decrease in Prepaid Rent Decrease in Inventory Decrease in Accounts Receivable Increase in Prepaid Rent Gain on Sale of Short-Term Investments Increase in Income Taxes Payable Decrease in Income Taxes Payable Increase in Salaries and Wages Payable Decrease in Salaries and Wages Payable Increase in Prepaid Insurance Decrease in Prepaid Insurance Increase in Accounts Receivable Loss on Sale of Short-Term Investments Increase in Inventory Depreciation/Amortization Expense Increase in Supplies Loss on Sale of Land Amortization of Bond Premium Decrease in Supplies Gain on Sale of Land Net Income Increase in Accounts Payable Decrease in Accounts Payable

Cash, January 1, 2014 Cash, December 31, 2014 Cash Flows from Financing Activities Cash Flows from Investing Activities Cash Flows from Operating Activities Net Cash Provided by Financing Activities Net Cash Provided by Investing Activities Net Cash Provided by Operating Activities Net Cash Used by Financing Activities Net Cash Used by Investing Activities Net Cash Used by Operating Activities Net Decrease in Cash Net Increase in Cash Total Adjustments

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Explanation / Answer

Michael's Company Cash flow Statement (Direct Method) For the Year Ended Dec 31, 2014 Cash Flow From opearting Activities Cash recd from Cutomers 1,153,890 Dividends Received 3,370 Cash Paid to Suppliers (763,080) Cash Paid For Expenses (238,338) Cash Paid for Interest (52,640) Cash Paid for I Tax (39,740) Cash Flow from Operating Activities 63,462 Cash flow from Investing Activities Sale OF Land (172910 - 124090 + 8930) 57,750 Purchase of Short Term Investment (31710 - 21290 + 4670) 15,090 Purchase of New Equipment (524840 - 400210) (124,630) Sale of Building Cash Flow / (used) from Investing activities (51,790) Cash Flow from Financing Activities Cash Dividends Paid (24,520) Payment of Long Term Notes Payables (70550 -60670) (9,880) Receipts from Isssue of Common Stock 28,868 Cash Flow from Financing Activities (5,532) Net Increase / (Decrease) in Cash 6,140 Cash balance as on Jan 1, 2014 3,960 Cash balance as on Dec. 31, 2014 10,100 Calculation of Cash Recd. From Customers Sales Revenue 1,160,560 Add: Opening Accounts Receivables 13,950 Total Due to Customers 1,174,510 Less: Closing Accounts Receivable (20,620) Cash recd from Customers 1,153,890 Calculation of cash Paid to Suppliers Cost of Goods Sold 748,300 Add: Closing Inventory 41,430 789,730 Less: opening Inventory (36,490) Purchases made during the year 753,240 Add: Opening Accounts Payable 31,970 Total amount Due 785,210 Less: Closing Accounts Payable (22,130) Cash payment to Suppliers 763,080 Calculation of Cash paid for Expenses Selling Expenses 80160 Administrative Expenses 156760 Add: Opening Salaries & Wages Payable 3,630 Add: Closing Prepaid rent 2,370 Add: Closing Prepaid insurance 2,640 Add: Closing Supplies 1,070 Add: Opening Premium on Bonds Payable 25,430 272,060 Less: Closing Salaries & Wages Payable (5,030) Less: Opening Prepaid rent (13,100) Less: Opening Prepaid Insurance (920) Less: opening supplies (830) Less: Closing Premium on Bonds Payable (13,842) Cash paid for Expenses 238,338 Calculation of Cash Paid for Income Tax Income Tax Expense 40,000 Add: Opening Income tax Payable 4,760 Total Income tax due 44,760 Less: Closing Income tax payable (5,020) Cash paid for Income tax payable 39,740 Michael's Company Statement of Cash Flows (Indirect Method) For the Year Ended Dec 31, 2014 Cash Flow from opearating activities: Net Income 59,130 Add/(Less) non cash effects on operating activities Depreciation / Amortization Expense 40,540 Gain on sale of Land (8,930) Gain on Sale of Short term Investments (4,670) Increase in Accounts Receivables (6,670) Increase in Inventory (4,940) Decrease in Prepaid Rent 10,730 Increase in Prepaid Insurance (1,720) Increase in Supplies (240) Decrease in Accounts Payables (9,840) Increase in Income Tax Payable 260 Increase in Salaries & wages Payable 1,400 Amortization of Bonds Premium (11,588) 4,332 Net Cash provided by operating activities 63,462 Cash flow from Investing Activities Sale OF Land (172910 - 124090 + 8930) 57,750 Purchase of Short Term Investment (31710 - 21290 + 4670) 15,090 Purchase of New Equipment (524840 - 400210) (124,630) Sale of Building Cash Flow / (used) from Investing activities (51,790) Cash Flow from Financing Activities Cash Dividends Paid (24,520) Payment of Long Term Notes Payables (70550 -60670) (9,880) Receipts from Isssue of Common Stock 28,868 Cash Flow from Financing Activities (5,532) Net Increase / (Decrease) in Cash 6,140 Cash balance as on Jan 1, 2014 3,960 Cash balance as on Dec. 31, 2014 10,100

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Problem 23-4 MICHAELS COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31, 2014

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