ACCT3302

Financial Statement Analysis

Tutorial 4: Structure of the Balance Sheet and Statement of Cash Flows

E4-3 – Making financial disclosures

The preliminary draft of the balance sheet at the end of the current fiscal year for Eagle Industries follows. The
statement will be incorporated into the annual report to stockholders and will present the dollar amounts at the
end of both the current and prior years on a comparative basis. The accounts in the statement are properly
classified, and the dollar amounts have been determined in accordance with generally accepted accounting
principles. The company does not intend to provide any more detailed information in the body of the statement.

Balance Sheet as of December 31, 2017

($ in millions)
Assets
Current assets
Cash $      13.4
Short-term investments 6.8
Accounts receivable (net) 113.0
Inventories 228.0
Prepayments and other           4.8
   Total current assets 366.0
Investments in equity securities (available for sale) 55.2
Property, plant, and equipment (net)       787.1
      Total assets $ 1,208.3
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities on long-term debt $      36.3
Notes payable 79.5
Accounts payable 139.8
Accrued taxes 42.3
Accrued interest 11.0
Other           4.4
   Total current liabilities 313.3
Long-term liabilities       477.2
       Total liabilities       790.5
Stockholders’ equity
Preferred stock 30.0
Common stock 77.0
Additional paid-in capital on common stock 65.4
Retained earnings—appropriated 40.8
Retained earnings—unappropriated       204.6
      Total stockholders’ equity       417.8
      Total liabilities and stockholders’ equity $ 1,208.3

Identify the accounts that most likely would require further disclosure in the notes to the financial statements and
describe what information would have to be disclosed in those notes by Eagle Industries before the statement can
be included as part of the annual report for presentation to its stockholders.
E4-10 – Determining cash from operations and reconciling with accrual net income

The following information was taken from the 2017 financial statements of Eiger Corporation, a maker of
equipment for mountain and rock climbers:

Net income $100,000 

Depreciation 30,000 
Increase (decrease) in
Accounts receivable 110,000 
Inventories (50,000)
Prepaid expenses 15,000 
Accounts payable (150,000)
Salaries payable 15,000 
Other current liabilities (70,000)

1. Calculate Eiger’s cash flow from operating activities for 2017.

2. Explain the reasons for the difference between the firm’s net income and its cash flow from operating
activities in 2017.

P4-2 – Preparation of a statement of cash flows and a balance sheet

Kay Wing, Inc., prepared the following balance sheet at December 31, 2016. P4-2 Preparation of a statement of
cash flows and a balance sheet Kay Wing, Inc., prepared the following balance sheet at December 31, 2016.

Balance Sheet as of December 31, 2016

Cash $  65,000
Accounts receivable 37,000
Inventory 70,000
Long-term investments 20,000
Land 39,000
Plant and equipment (net)   109,000
Total assets $340,000
Accounts payable $  33,000
Taxes payable 4,000
Bonds payable 80,000
Capital stock 90,000
Retained earnings   133,000
Total liabilities and stockholders’ equity $340,000

The following occurred during 2017.

1. $15,000 in cash and a $35,000 note payable were exchanged for land valued at $50,000.
2. Bonds payable (maturing in 2021) in the amount of $30,000 were retired by paying $28,000 cash.
3. Capital stock in the amount of $40,000 was issued at par value.
4. The company sold surplus equipment for $10,000. The equipment had a book value of $14,000 at the time
of the sale.
5. Net income was $35,500.
6. Cash dividends of $5,000 were paid to the stockholders.
7. 100 shares of stock (considered short-term investments) were purchased for $8,300.
8. A new building was acquired through the issuance of $75,000 in bonds.
9. $12,000 of depreciation was recorded on the plant and equipment.
10. At December 31, 2017, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had
increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes
payable were unchanged from 2016.

1. Prepare a statement of cash flows for 2017.

2. Prepare the December 31, 2017, balance sheet for Kay Wing, Inc.
 Bank (CA)
Beginning balance $65,000 15,000 Note 1
Note 3 40,000 28,000 Note 2
Note 4 10,000 5,000 Note 6
Adjusted Profit 49,500 8,300 Note 7
4,500 Note 10
3,000 Note 10
8,000 Note 10

Ending balance $93,200