Solution for Class 8

In-Class Exercise

Accts. Receivable Allow for B.D.

+ - - +
1 Jan. 2011 balance 350 1 Jan. 2011 balance 70
2011 wholesale sales 5,000 2011 bad debt expense 150
2011 write-offs 120 2011 write-offs X = 120
2011 collections Y = 4,800
31 Dec. 2011 balance 430 31 Dec. 2011 balance 100
2012 wholesale sales 5,500 2012 bad debt expense 190
2012 write-offs 210 2012 write-offs X = 210
2012 collections Y = 5,420
31 Dec. 2012 balance 300 31 Dec. 2012 balance 80

2012 Cash collections from customers = $5,420 2012 collections from Accounts Receivable (above) + $2,270
2012 cash collections from Unearned Revenue (below)
= $7,690

2011 Cash collections from customers = $4,800 2011 collections from Accounts Receivable (above) + $1,140
2011 cash collections from Unearned Revenue (below)
= $5,940

Unearned Revenue Wages Payable

- + - +
1 Jan. 2011 balance 500 1 Jan. 2011 balance 100
2011 airline revenue 1,200 2011 wage expense 1,000
2011 cash collections X = 1,140 2011 wage payments X = 930

31 Dec. 2011 balance 440 31 Dec. 2011 balance 170

2012 airline revenue 2,000 2012 wage expense 1,300
2012 cash collections X = 2,270 2012 wage payments X = 1,320

31 Dec. 2012 balance 710 31 Dec. 2012 balance 150

Inventory Accounts Payable

+ - - +
1 Jan. 2011 balance 300 1 Jan. 2011 balance 290
2011 inventory purchase X = 2,660 2011 inventory purchase 2,660
2011 transfers to customers 2,600 2011 supplier payments X = 2,610

31 Dec. 2011 balance 360 31 Dec. 2011 balance 340

2012 inventory purchase X = 2,790 2012 inventory purchase 2,790
2012 transfers to customers 2,800 2012 supplier payments X = 2,830

31 Dec. 2012 balance 350 31 Dec. 2012 balance 300

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 PP&E Accum. Dept.
+ - - +
1 Jan. 2011 balance 7,500 1 Jan. 2011 balance 1,500
2011 cash purchases 300 2011 depreciation exp. 400
2011 acquisitions 1,000 2011 PP&E impairment 100
2011 impair reversal 200
2011 PP&E disposal (note) X = 900 2011 PP&E disposal X = 400
31 Dec. 2011 balance 7,900 31 Dec. 2011 balance 1,400
2012 cash purchases 1,000 2012 depreciation exp. 350
2012 acquisitions 1,300 2012 PP&E impairment 120
2012 finance lease 400 2012 impair reversal 50
2012 PP&E disposal (note) X = 1,200 2012 PP&E disposal X = 120
31 Dec. 2012 balance 9,400 31 Dec. 2012 balance 1,700

Note: Proceeds from PP&E disposal is calculated as follows:

2012 2011
Cost of disposed PP&E 1,200 900
Less: Accumulated depreciation on disposed PP&E 120 400
Net carrying value of disposed PP&E (from above) 1,080 500

Proceeds from disposal of PP&E X = 1,230 X = 400

Less: Net carrying value of disposed PP&E 1,080 500
Gain (Loss) from disposal of PP&E 150 (100)

Intangible Assets Accum. Amort.

+ - - +
1 Jan. 2011 balance 2,300 1 Jan. 2011 balance 900
2011 cash purchases 400 2011 amortization exp. 100
2011 acquisitions 300 2011 impairment 50
2011 disposal (note) X = 200 2011 disposal X = 180
31 Dec. 2011 balance 2,800 31 Dec. 2011 balance 870
2012 cash purchases 500 2012 amortization exp. 90
2012 acquisitions 200 2012 impairment 70
2012 disposal (note) X = 300 2012 disposal X = 80
31 Dec. 2012 balance 3,200 31 Dec. 2012 balance 950

Note: Proceeds from intangible disposal is calculated as follows:

2012 2011
Cost of disposed intangibles 300 200
Less: Accumulated amortization on disposed intangibles 80 180
Net carrying value of disposed intangibles (from above) 220 20

Proceeds from disposal of intangibles X = 150 X=0

Less: Net carrying value of disposed intangibles 220 20
Gain (Loss) from disposal of intangibles (70) (20)

Goodwill, Net Contrib Equity

+ - - +

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 1 Jan. 2011 balance 200 1 Jan. 2011 balance 200
2011 acquisitions 500 2011 cash issuance 50
2011 impairment 60 2011 acquisition issuance 400
2011 share repurchase X = 200
31 Dec. 2011 balance 640 31 Dec. 2011 balance 450
2012 acquisitions 400 2012 cash issuance 100
2012 impairment 300 2012 acquisition issuance 500
2012 share repurchase X = 210
31 Dec. 2012 balance 740 31 Dec. 2012 balance 840

Retained Earnings Dividends Payable

- + - +
1 Jan. 2011 balance 3,630 1 Jan. 2011 balance 200
2011 net income 1,620 2011 dividends declared 1,200
2011 dividends declared X = 1,200 2011 dividend payments X = 1,000
31 Dec. 2011 balance 4,050 31 Dec. 2011 balance 400
2012 net income 2,200 2012 dividends declared 2,390
2012 dividends declared X = 2,390 2012 dividend payments X = 2,200
31 Dec. 2012 balance 3,860 31 Dec. 2012 balance 590

Bonds Payable Interest Payable

- + - +
1 Jan. 2011 balance 3,500 1 Jan. 2011 balance 60
2011 bond issuance 1,300 2011 interest expense 200
2011 bond acquisition 600 2011 interest payments X = 180
2011 borrowing repayment X = 1,400
31 Dec. 2011 balance 4,000 31 Dec. 2011 balance 80
2012 bond issuance 1,200 2012 interest expense 210
2012 bond acquisition 500 2012 interest payments X = 250
2012 borrowing repayment X = 900
31 Dec. 2012 balance 4,800 31 Dec. 2012 balance 40

Cash Flow Statement

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 2012 2011
Operating cash flows
Cash collections from customers 7,690,000 $5,940,000
Cash payments for inventory (2,830,000) (2,610,000)
Cash payments to employees (1,320,000) (930,000)
Cash payments for interest (250,000) (180,000)
Net operating cash flows 3,290,000 2,220,000
Investing cash flows
Proceeds from sale of PP&E 1,230,000 400,000
Proceeds from sale of intangibles 150,000 0
Acquisition of companies (900,000) (800,000)
Purchase of PP&E (1,000,000) (300,000)
Purchase of intangibles (500,000) (400,000)
Net investing cash flows (1,020,000) (1,100,000)
Financing cash flows
Proceeds from bond issuance 1,200,000 1,300,000
Proceeds from share issuance 100,000 50,000
Share repurchases (210,000) (200,000)
tRepayment of borrowings (900,000) (1,400,000)
Payment of dividends (2,200,000) (1,000,000)
Net financing cash flows (2,010,000) (1,250,000)
Net change in cash $260,000 $(130,000)
Beginning cash balance 170,000 300,000
Ending cash balance $430,000 $170,000

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