Jessica and Tara, owners of Leming & Moran, Inc. operate a lemon meringue pie co
ID: 2568768 • Letter: J
Question
Jessica and Tara, owners of Leming & Moran, Inc. operate a lemon meringue pie company. They fired their CPA firm before they issued their financial statements for the period ended December 31, 2016.
In order to complete the financials, Leming & Moran Inc. hired the local CPA firm of Carlson & Gjorgiloska, CPA's to complete the job.
Since partners usually don't do this kind of work, the partners Corey and Stef decided they'd give the assignment to their best CPA at the firm, Michael Thomson.
Because Michael is always too busy trying to work his professors over, he couldn't finish the cash flows.
Please help Michael complete this assignment. Attached are all the financial statements you'll need to prepare the statement of cash flows.
PS: the attached excel spreadsheet is for your convenience. you can enter your information on the spreadsheet if you'd like.
PSS: THINK about the investing activities...
LEMING & MORAN, INC. BALANCE SHEETS December 31, 2016 and 2015 ASSETS 2016 2015 CURRENT ASSETS Cash and cash equivalents $ 422,631 $ 544,482 Trade accounts receivable 3,504,964 2,893,233 Inventory 240,400 68,000 Total current assets 4,167,995 3,505,715 PROPERTY AND EQUIPMENT, Net 46,901 6,881 OTHER ASSET, Security Deposits 2,600 - TOTAL ASSETS $ 4,217,496 $ 3,512,596 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 717,304 $ 488,373 Accrued expenses and pension 47,000 98,750 Interest payable 7,301 3,172 Commissions payable 25,600 32,600 Income taxes payable 23,500 39,161 Line of credit payable 1,360,000 480,000 Total current liabilities 2,180,705 1,142,056 NONCURRENT LIABILITIES Notes payable to related parties 270,000 270,000 STOCKHOLDERS' EQUITY Common stock ($10 par value; 10 shares authorized, issued and outstanding) 100 100 Additional paid in capital 176,000 176,000 Retained earnings 1,590,691 1,924,440 Total stockholders' equity 1,766,791 2,100,540 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,217,496 $ 3,512,596 LEMING & MORAN, INC. STATEMENTS OF INCOME December 31, 2016 and 2015 2016 2015 NET SALES $ 49,999,508 $ 44,889,252 COST OF GOODS SOLD 47,512,794 41,823,359 GROSS PROFIT 2,486,714 3,065,893 SELLING AND ADMINISTRATIVE EXPENSES 1,935,411 1,065,839 OPERATING INCOME 551,303 2,000,054 OTHER EXPENSE, Interest 135,222 108,510 INCOME BEFORE STATE INCOME TAXES 416,081 1,891,544 PROVISION FOR STATE INCOME TAXES 23,500 50,761 NET INCOME $ 392,581 $ 1,840,783 LEMING & MORAN, INC. STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 2016 and 2015 2016 2015 RETAINED EARNINGS - BEGINNING $ 1,924,440 $ 258,340 NET INCOME 392,581 1,840,783 LESS: DIVIDENDS (726,330) (174,683) RETAINED EARNINGS - ENDING $ 1,590,691 $ 1,924,440 LEMING & MORAN, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 2016 and 2015 2016 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to cash flows from operating activities: Depreciation Decrease (Increase) in operating assets: Trade accounts receivable Inventory Security deposits Employee advances Increase (Decrease) in operating liabilities: Accounts payable Accrued expenses and pension Interest payable Commissions payable Income taxes payable Cash flows provided (used) by operating activities - CASH FLOWS FROM INVESTING ACTIVITIES Computer and office equipment purchases Cash flows used by investing activities - CASH FLOWS FROM FINANCING ACTIVITIES New borrowings in excess of principal payments Principal payments in excess of new borrowings Dividends paid Cash flows provided (used) by financing activities - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - CASH AND CASH EQUIVALENTS - BEGINNING CASH AND CASH EQUIVALENTS - ENDING $ - LEMING & MORAN, INC. SCHEDULES OF COST OF GOODS SOLD Years Ended December 31, 2016 and 2015 2016 2015 Beginning inventory $ 68,000 $ 364,600 Purchases 46,327,218 40,154,183 Freight and shipping 1,357,976 1,372,576 Cost of goods available for sale 47,753,194 41,891,359 Less: Ending inventory 240,400 68,000 Total cost of goods sold $ 47,512,794 $ 41,823,359 LEMING & MORAN, INC. SCHEDULES OF SELLING AND ADMINISTRATIVE EXPENSES Years Ended December 31, 2016 and 2015 2016 2015 Selling Expenses Commissions $ 90,204 $ 257,761 Advertising 1,780 3,559 Auto and travel 85,430 63,969 Meals and entertainment 52,072 60,398 Total selling expenses 229,486 385,687 Administrative Expenses Officers' salaries 957,000 278,000 Other salaries 392,836 93,525 Payroll tax expense 47,337 23,248 Officers' life insurance 22,323 16,920 Bank and credit card charges 3,632 - Contributions 2,395 - Depreciation 5,420 3,440 Equipment lease 12,683 - Insurance 39,394 29,889 Legal and accounting fees 13,672 18,350 Miscellaneous expense 15,600 20,086 Office supplies & expense 66,350 84,905 Pension expense 45,000 41,700 Postage 5,389 4,024 Rent 14,258 10,969 Repairs & maintenance 9,471 5,091 Supplies 6,082 7,235 Telephone 43,619 39,931 Utilities 3,464 2,839 Total administrative expenses 1,705,925 680,152 Total selling and administrative expenses $ 1,935,411 $ 1,065,839Explanation / Answer
Cash flow from operating activities Net Income 3,92,581 Add: Depreciation 5,420 Decrease (Increase) in Operating Assets Trade Accounts Receivable -6,11,731 Inventory -1,72,400 Security Deposites -2,600 Increase (Decrease) in Operating Liabilities Accounts payable 2,28,931 Accrued expenses and pension -51,750 Interest payable 4,129 Commission payable -7,000 Income taxes payable -15,661 Cash flows provided by operating activities -2,30,081 Cash flow from investing activities Computer and office equipment purchases -45,440 Cash flow used by investing activities -45,440 Cash flow from financing activities New Borrowing in excess of principal payments 8,80,000 Dividends paid -7,26,330 Cash flows provided by financing activities 1,53,670 Net Increase (Decrease) in Cash -1,21,851 Cash at the beginning 5,44,482 Closing Cash 4,22,631
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