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# Question One:

## 1. Calculate the net income for this period.

NI = Revenue Expense
= (\$340 + \$90,000) (\$350 + \$45,500 + \$250 + \$2,500)
= \$41,740
2. Calculate the net cash flow from operating activities for this period.
Net Cash Flow = Cash Inflow Cash Outflow
= (\$560 + \$90,000) (\$150 + \$45,500 + \$470)
= \$44,440
Question Two:
1) E, H
2) D
3) A, D
4) A, D, F, G
5) H
Question Three:
1. Calculate the missing values in XYZs balance sheet.
Total Assets (2014) = 1,070,000 + 830,000 = 1,900,000
Total Liabilities & Equity (2014) = Total Asset = 1,900,000
Stockholders Equity (2014) = 1,900,000 289,000 = 1,611,000
Common Stock (2014) = 1,611,000 238,000 = 1,373,000
Unearned Revenue (2014) = 106,000 100,000 2,000 = 4,000
Stockholders Equity (2015) = 1,800,000 + 532,000 = 2,332,000
Total Liabilities & Equity (2015) = 663,000 + 2,332,000 = 2,995,000
Total Assets (2015) = Total Liabilities & Equity (2012) = 2,995,000
Total Current Assets (2015) = 2,995,000 910,000 = 2,085,000
Cash (2015) = 2,085,000 300,000 70,000 = 1,715,000
2. Calculate net income for the year.
The first step in calculating net income is to calculate sales revenue, which is
not a straight forward task to do. Here is how to calculate sales revenue:
a) Beg A/R + credit sales cash collected from credit sales = End A/R
120,000 + 350,000 cash collected from credit sales = 300,000
Therefore cash collected from credit sales = 170,000.
b) Cash collected from customers = cash sales + Cash collected from credit
sales + cash collected in advance as unearned revenue.
616,000 = 396,000 + 170,000 + cash collected in advance as unearned revenue.
Therefore cash collected in advance as unearned revenue = 50,000
c) Beg. Unearned revenue + cash collected in advance revenue earned by
providing the service or delivering the goods = End. Unearned revenue.
4,000 + 50,000 revenue earned = 24,000

d) Now we can calculate total sales revenue as the sum of cash sales, credit
sales, and this portion earned from the unearned revenue.
Therefore sales revenue = 350,000 + 396,000 + 24,000 = 770,000
The second step in calculating net income is to calculate individual
expenses/losses as follows:
Cost of goods sold = 150,000
Interest expense = Interest paid + accrued interest = 34,000 + 1,000 = 35,000
Depreciation expense = 150,000
Loss on sold equipment = 50,000
Therefore NI = 770,000-150,000-35,000-65,000-150,000-50,000 = 320,000.
Therefore Dividends = NI- change in RE = 320,000 294,000 = 26,000
3. Prepare the cash flow statement for the year using the indirect method.
Statement of Cash Flows
For Fiscal Year Ended 12/31/2015
Cash provided by operations:
Net income
Depreciation
Decrease (increase) in account receivable
Decrease (increase) in inventory
Increase (decrease) in account payable
Increase (decrease) in accrued interest
Increase (decrease) in unearned
revenue
Loss in sale of equipment
Cash provided (used) by
operation

\$320,000.00
\$150,000.00
-\$180,000.00
-\$20,000.00
\$180,000.00
\$1,000.00
\$26,000.00
\$50,000.00
\$527,000.00

## Cash used by investing activities:

Sales of Equipment
Cash provided (used) in investing
activities

-\$400,000.00
\$120,000.00

## Cash used by financing activities:

Increase (decrease) in common stock
Increase (decrease) in bank loan
Dividends paid
Cash provided (used) in financing
activities

\$427,000.00
\$167,000.00
-\$26,000.00

\$815,000.00

-\$280,000.00

\$568,000.00

## Cash and cash equivalent, beginning of year

Cash and cash equivalent, end of year

\$900,000.00
\$1,715,000.00