04 Jun PREPARE AN INCOME STATEMENT.
12/31/12
Balance Sheet
Cash $17,000
Accounts
Receivable $12,000
Prepaid
Insurance $5,000
Inventory $15,000
$49,000
Equipment $100,000
Accumulated
Depreciation $(20,000)
$80,000
Total
Assets $129,000
Accounts
Payable $9,000
Income
Taxes Payable $3,000
Total
Liabilities $12,000
Common
Stock $100,000
Retained
Earnings $17,000
Total
Equity $117,000
Total
Liabilities & Equity $129,000
Additional Information:
² Sales for 2013 are expected to be $200,000.
² Accounts Receivable turnover is expected to be 12 times – 30 days of
sales in accounts receivable out of a 360 day year (based upon sales and ending
2013 accounts receivable). This would be
used to get ending accounts receivable on the 2013 balance sheet – day’s sales
in accounts receivable is ending accounts receivable divided by average sales
(sales for 2013 divided by 360 days). We
can “back into” ending accounts receivables once we have estimated sales. Note that the turnover ratio changes so the
turnover ratio at the end of 2012 may have been different than that expected at
the end of 2013.
² Gross Margin ratio is expected to be 40 percent.
² Inventory Turnover is expected to be 12 times – 30 days of cost of
sales in ending inventory out of a 360 day year (based upon cost of goods sold
and ending 2013 inventory). This would
be used to get inventory on the 2013 balance sheet. See accounts receivable above for similar
computations.
² The cost of ending inventory is expected to be paid next month –
ending accounts payable will be same as ending inventory. Or, to state in another way, accounts
payable turnover is same as the inventory turnover. The assumption is that only inventory
purchases flow through accounts payable – the assumption actually used by most
manufacturing/merchandising companies when prepared the statement of cash
flows.
² Equipment was purchased on 1/1/13 for $20,000. Equipment has a five year life, no salvage
value, and is depreciated using the straight-line method. The old equipment is being depreciated on the
same basis.
² Salaries are expected to be $2,000 per month. It is expected that one-half month will be
owed on 12/31/13 because of when payday falls.
² $30,000 in cash was borrowed on 12/31/13 by issuing a Note Payable.
² Insurance costing $18,000 was purchased on 6/1/13 (the same time in
which the policy purchased in 2012 expired – the new policy was for 12 months).
² The tax rate is 30 percent.
Income taxes for the current year are payable during the first two
months of the next year.
² Dividends of $2,000 were paid during 2013.
Instructions
1.
Prepare an Income
Statement. After you are completed, a
corrected Income Statement should be completed by your spreadsheet
automatically with only a change in any of the assumptions that will be within
spreadsheet one.
Prepare a Statement of Retained Earnings. This statement should automatically
change if any of the assumptions are changed within spreadsheet one.
Prepare a Balance Sheet without cash yet known. Have the Balance Sheet for 12/31/12
(given in template) and 12/31/13 on the same schedule so that the
differences can be easily computed for instruction 4. When you are finished, a corrected
Balance Sheet for 2013 should automatically be computed by your
spreadsheet with a change in any of the assumptions within spreadsheet one.
Prepare a Statement of Cash Flows on the direct method (do not
include the indirect method of calculating operating cash flows). The Statement of Cash Flows should
automatically change when any assumption is changed. The ending cash as shown on the
statement of cash flows will then flow to the Balance Sheet.
On spreadsheet A have only the following:
Assumptions
Sales – $200,000
Equipment Purchases – $20,000
Salaries per Month – $2,000
Twelve month insurance policy purchased –
$18,000
Dividends paid – $2,000
Borrowings – $30,000
Have the Income Statement and Retained
Earnings Statement on spreadsheet B. Use
spreadsheet C for the comparative Balance Sheet and Spreadsheet D for the
Statement of Cash Flows.
When you believe your spreadsheets from
instructions 1 through 4 are complete, then save that spreadsheet within a
file. Reopen that file and make the
following changes:
On the spreadsheet A for the assumptions change
sales to $210,000, equipment purchases to 30,000, insurance purchased to
$24,000, borrowings to $40,000, and dividends to $3,000. You should see all the financial statements
change automatically to a new balanced balance sheet. If not, then you did not use a formula where
needed within at least one cell. When
the changes are complete, use the “save as” function and save in a new file
with a different name.
Submit both files through the assignment
function in blackboard by the due date.
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