The information below depicts 2017 summary for Brown Company. The company has tw
ID: 2484138 • Letter: T
Question
The information below depicts 2017 summary for Brown Company. The company has two operations, that is, manufacturing and wholesale. All amounts are in thousands. Sales revenue $25,000 Cost of goods sold 16,000 Selling and administrative expenses 4,700 2015 Income taxes 1,244 Goodwill write-off 820 Loss on disposition of wholesale division, net of tax 440 Loss due to flood damage, net of tax (This is extraordinary item) 390 Gain on sale of investments (This is normal and recurring) 110 Loss on operations of wholesale division, net of tax 90 Interest revenue 70 Brown Company has 500 shares of common stock outstanding throughout the year. The company decided to discontinue its entire wholesale operations. On September 1, 2017, Brown Company sold the wholesale operations to Green Company.
Required Prepare a multi-step income statement and earnings per share for the Brown Company.
2. Posterity Inc.’s December 31, 2016 balance sheet accounts are copied below:
Cash $20,000
Accounts receivable 21,200
Accounts payable 30,000
Long-term notes payable 41,000
Long-term Investments 32,000
Common stock 100,000 Property, plant, and equipment assets (net of depreciation) 81,000
Retained earnings 23,200
Land 40,000 During 2017,
the following transactions occurred for the company
1. Purchased a tract of land for $18,000 cash.
2. Sold part of its $32,000 investment for $15,000.
This transaction resulted in a gain of $3,400.
The investment was classified as available-for-sale..
Issued additional $20,000 in common stock. The issue was at par.
4. Declared and paid dividends of $8,200 to stockholders.
5. Purchased land through the issuance of $30,000 in bonds.
6. Retired Long-term notes payable with the face value of $16,000. The company paid $16,000 cash.
7. Recorded depreciation expense of $11,000. Net income for 2017 was $32,000. Balances on December 31, 2017 are below: Cash $32,000 Accounts Receivable$41,600 Accounts Payable $30,000 Required: a. Prepare a statement of cash flows for year ended December 31, 2017. Use the indirect method for cash flows from operating activities. b. Explain the uses of the statement of cash flows in making informed decisions.
Explanation / Answer
All Amounts in $ Brown Company Multi-Step Income Statement for 2017 (All amounts in $ thousands) EPS mentioned in absolute terms Sales Revenue 25000 Cost of Goods Sold 16000 Gross Profit 9000 Interest Revenue 70 Gain on Sale of Investments 110 Total Income 9180 Selling and Administrative Expenses 4700 Operating Profit before Income Tax 4480 2015 Income Taxes 1244 Net Income before extraordinary items 3236 Extra-Ordinary Items Goodwill write off 820 Loss on Disposition of Wholesale Division 440 (Net of Tax) Loss due to flood damage, net of tax 390 Loss on Operations of Wholesale Division, Net of Tax 90 1740 Transfer to Retained Earnings 1496 No. of shares of common stock outstanding 500 Earning per Share (EPS) 2992 $ per share Posterity Inc. All Amounts in $ a. Cash Flows for the year ended December 31, 2017 Cash Flows from Operating Activities Net Income per Income Statement 32000 Less : Gain on Sale of Investment -3400 Add : Depreciation Expense 11000 Cash Flows before Working Capital changes 39600 Less : Increase in Accounts Receivable -20400 Cash Inflows from Operating Activities 19200 Cash Flows from Investing Activities Purchase of Land -48000 Sale of Investments 15000 -33000 Cash Flows from Financing Activities Issue of Common Stock 20000 Issue of Bonds against Land 30000 Retirement of Long-Term Notes Payable -16000 Dividends Declared and Paid -8200 25800 Net Cash Inflows during the year 12000 Opening Cash/Cash Equivalents 20000 Closing Cash/Cash Equivalents 32000 b. Cash Flows provide information about the sources and application of cash during a particular year under consideration. The movement in cash provides an insight into how much cash was collected from various sources, and also the sources against which it was utilised. A decision regarding the capital infusion required in a Company, or retirement of long-term or short-term liabilities, can be done, based on the cash position of the Company, and also the increase/decrease in cash and cash equivalents, which help in providing analytical reviews for such decisions having long-term implications for the Company.
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