PS 2 Spring 2021

PS2
Problem 5-1 5 points

The following information pertains to Yogi Company for 2018.
Beginning Inventory 350 units @ $21 per unit

Units Purchased 1050 units @ $12 per unit
Ending inventory consisted of 70 units. Yogi sold 1,330 units at $ 40 per unit
All purchases and sales were made with cash. Beginning inventory purchased before year started.
REQUIRED
a. Compute the gross margin for Yogi Company using the following cost flow assumptions:
(1) FIFO, (2) LIFO, and (3) weighted average.
b. What is the dollar value of ending inventory for FIFO and LIFO?
c. Determine the cash flow from operating activities in 2018, using each of the three cost flow assumptions
listed in Requirement a . Ignore the effect of income taxes. Explain why these cash flows have
no differences.

The following transactions apply to Sorento Co. for 2018, its first year of operations.
1 Issued $420,000 of common stock for cash.

2 Loaned $43,750 to Alley Co. on September 1, 2018. The note had a one-year term to maturity
and an 3% interest rate. All monies will be collected on Aug 31 2019
3 Recorded the accrued interest income on December 31, 2018 (see item 2).
4 Provided $343,000 of services on account.
5 Paid $129,500 of salaries expense for the year.
6 Uncollectible accounts expense is estimated to be 2.0% of service revenue on account.
7 Collected $269,500 cash from accounts receivable.
8 Paid a $9,800 dividend to the stockholders.
REQUIRED
a. Show the effects of the above transactions in a horizontal statements model.
b. Prepare the income statement, balance sheet, and statement of cash flows for 2018.

The following events apply to Glenham Co for the 2018 fiscal year:
1 Received $73,500 cash from the issue of common stock.

2 Paid $35,000 for a new for Vehicle.
3 Paid $23,800 cash for operating expenses.
4 Earned $108,500 in cash revenue.
5 Paid $50,750 cash for salaries expense.
6 Adjusted the records to reflect the use of the Vehicle. The vehicle, purchased on January 1,
2018, has an expected useful life of five years and an estimated salvage value of $12,250
Use straight-line depreciation. The adjusting entry was made as of December 31, 2018.
REQUIRED
a. Record the above transactions in a horizontal statements model
b. What amount of depreciation expense would The Glenham Co report on the 2018 income
statement?
c. What amount of accumulated depreciation would The Glenham Co report on the
December 31, 2018, balance sheet?
d. Would the cash flow from operating activities be affected by depreciation in 2018?
On January 1, 2018, Whalen Company overhauled four turbine engines that generate power for
customers. The overhaul resulted in a slight increase in the capacity of the engines to produce power.
Such overhauls occur regularly at two-year intervals and have been treated as maintenance expense
in the past. Management is considering whether to capitalize this year’s $87,500 cash cost
in the engine asset account (fixed assets on the Balance Sheet) or to expense it as a maintenance expense.
Assume that the engines have a remaining useful life of two years and no expected salvage value.
Also assume straight-line depreciation.
REQUIRED
a Determine the amount of expense Whalen would recognize in 2018 and 2019 if the cost were
recognized as maintenance expense, not capital.
b Determine the effect of the overhaul on cash flow from operating activities for 2018 and
2019 if the cost were recognized as maintenance expense, not capital.
c Determine the amount of annual depreciation expense Whalen would recognize in 2018
and 2019 if the cost were capitalized (recorded to the balance sheet) in the Engine account or Fixed Assets account.
d Determine the effect of the overhaul on cash flow from operating activities for 2018 and
2019 if the cost were capitalized and expensed through depreciation charges.
SGlasses Inc. began operations when it acquired $157,500 cash from the issue of common stock
on January 1, 2016. The cash acquired was immediately used to purchase equipment for $157,500
that had a $31,500 salvage value and an expected useful life of four years. The equipment was
used to produce the following revenue stream (assume all revenue transactions are for cash). At the
beginning of the fifth year, the equipment was sold for $15,750 cash.
SGlasses Inc. uses straight-line depreciation. Assume depreciation is the only expense to record.
2016 2017 2018 2019 2020

Revenue $ 29,400 $ 32,200 $ 33,600 $ 27,300 0
REQUIRED
Prepare income statements, balance sheets, and statements of cash flows for each of the five years.
Students may want to utilize a horizontal model for each year to organize transactions and verify numbers for financial statements
The following transactions apply to Rockwell Corp. for 2018:

1. The business was started when Rockwell Corp. received $227,500 from the issue of common stock.
2. Purchased $665,000 of merchandise on account.
3. Sold merchandise for $840,000 cash (not including sales tax). Sales tax of 8%
is collected when the merchandise is sold. The merchandise had a cost of $507,500
Good idea to split this into two accounting entries - think chapter 3.
4. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the
warranty claims would amount to 3% of merchandise sales.
5. Paid the sales tax of 8% to the state agency on $560,000 of the sales.
6. On September 1, 2018, borrowed $87,500 from the local bank. The note had a
5% annual interest rate and matures on August 31, 2019.
7 Paid $476,000 of accounts payable.
8 Paid $14,000 for warranty repairs during the year. This is the payment of warranties payable.
9 Paid $217,000 cash in operating expenses for the year.
10. Recorded accrued interest payable at the end of the year or 12/31.
REQUIRED
a. Record the above transactions in a horizontal statements model.
b. Prepare the income statement, balance sheet, and statement of cash flows for 2018.
c. What is the total amount of current liabilities at December 31, 2018?

The following events apply to Storm King Co. for fiscal 2018 and 2019
1 Borrowed $63,000 from the local bank on April 1, 2018, when the company was started.
The note had an 8 percent annual interest rate and a one-year term to maturity.
2 Recognized $164,500 of revenue on account in 2018.
3 Recognized $220,500 of revenue on account in 2019.
4 Collected $143,500 cash from accounts receivable in 2018.
5 Paid $101,500 of salaries expense in 2018.
6 Collected $215,250 cash from accounts receivable in 2019.
7 Paid $120,750 of operating expenses in 2019.
8 Accrue interest payable in 2018
9 Accrue interest payable in 2019.
10 Paid the loan and interest at the maturity date in 2019.
REQUIRED
a. Record the above transactions in a horizontal statements model. Organize into two separate years and separate events accordingly.
b. What amount of net cash flow from operating activities would be reported on the 2018 cash
flow statement?
c. What amount of interest expense would be reported on the 2018 income statement?
d. What amount of total liabilities would be reported on the December 31, 2018, balance sheet?
e. What amount of retained earnings would be reported on the December 31, 2018, balance
sheet?
f. What amount of cash flow from financing activities would be reported on the 2018 statement of cash flows?
g. What amount of interest expense would be reported on the 2019 income statement?
h. What amount of cash flows from operating activities would be reported on the 2019 cash
flow statement?
i. What amount of assets would be reported on the December 31, 2019, balance sheet?

On October 1, 2016, Walnut Inc Corporation declared a $262,500
cash dividend to be paid on December 30 to shareholders of record on November 20.
REQUIRED
Record the events occurring on October 1, November 20, and December 30 in a horizontal statements model. In the Cash Flow column,
indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA).

Merky Co had the following stock issued and outstanding at January 1, 2018:
1 455,000 shares of $50 par common stock.
2 26,250 shares of $100 par, 5 percent, noncumulative preferred stock
On April 2, Merky Co declared the annual cash dividend on its 26,250 shares of
preferred stock and a $0.25 per share dividend for the common shareholders. The dividends will be
paid on June 1 to the shareholders of record on May 1.
REQUIRED
Determine the total amount of dividends to be paid to the preferred shareholders and common shareholders.

PS 2 Spring 2021

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PS2

Problem 5-1 5 points

Beginning Inventory 350 units @ $21 per unit

Problem 5-2 25 points

1 Issued $420,000 of common stock for cash.

Problem 6-1 20 points

1 Received $73,500 cash from the issue of common stock.

Problem 6-2 10 points

Problem 6-3 15 points

2016 2017 2018 2019 2020

Problem 7-1 15 points

The following transactions apply to Rockwell Corp. for 2018:

Problem 7-2 10 points

Problem 8-1 5 points

Problem 8-2 5 points

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