Posted: August 5th, 2022

# Predicting

Exercise 1

P13-40A Prepare a statement of cash flows (direct method)

Williams Digital Services, Inc., has provided the following data from the company’s records for the year just ended December 31:

a. Collection or interest………………………… \$5,200

b. Cash sales………………………………… \$252,500

c. Credit sales………………………………… \$673,500

d. Proceeds from sale of long-term investment… 12,300

e. Gain on sale of investment…………………… 2,100

f. Payments to suppliers……………………… \$570,000

g. Cash payment to purchase plant assets…….,,,,, 52,400

h. Depreciation expense………………………… 63,200

i. Salary expense………………………………… 77,100

j. Payment of short-term note payable………… 71,700

k. Costs of goods sold…………………………. 567,000

l. Proceeds from insurance of long-term note payable……. 24,900

m. Income tax expense and payment……………………….. 38,000

n. Proceeds for issuance of common stock……………… 21,500

o. Receipt of cash dividends……………………………….. 6,600

p. Interest revenue………………………………………….. 6,100

q. Payment of cash dividends………………………………. 28,200

r. Collections of accounts receivable………………………… 572,000

s. Amortization expense……………………………………… 3,700

t. Payments on long-term notes payable…………………………… 44,500

u. Interest expense and payments………………………………… 2,400

v. Purchase of equipment by issuing common stock to the seller…….. 72,900

w. Payment of salaries…………………………………………………. 74,400

x. Proceeds from sale of plant assets………………………………….. 24,700

y. Loss on sale of plant assets…………………………………………. 3,800

z. Cash and cash equivalents balance, beginning of the year……….. 25,500

Requirements

1. Prepare the statement of cash flows for Williams Digital Services, Inc., using the direct method for cash flows from operations. Note that you will need to calculate the ending balance of cash and cash equivalents. Include a schedule of noncash investing and financing activities.

2. Evaluate Williams’ cash flows for the year. Discuss each of the categories of cash flows in your response.

Exercise 2

P14-41A Comprehensive analysis

Block Department Stores’ chief executive officer (CEO) has asked you to compare the company’s profit performance and financial position with the average for the industry. The CEO has given you the company’s income statement and balance sheet, as well as the industry average data for retailers.

Requirements

1. Prepare a common-size income statement and balance sheet for Block Department Stores. The first column of each statement should present Block Department Stores’ common-size statement, while the second column should present the industry averages.

2. For the profitability analysis, compute Block Department Stores’ (a) ratio of gross profit to sales, (b) ratio of operating income to sales, and (c) ratio of net income to sales. Compare these figures with the industry averages. Is Block Department Stores’ profit performance better or worse than the industry average?

3. For the analysis of financial position, compute Block Department Stores’ (a) ratio of current assets to total assets and (b) ratio of stockholders’ equity to total assets. Compare these ratios with the industry averages. Is Block Department Stores’ financial position better or worse than the industry averages?

Exercise 3

E14-31B Prepare common-size income statement

Prepare a comparative common-size income statement for Wolf Corporation. To an investor, how does 2020 compare with 2019? Explain your reasoning.

Exercise 4

P13-45B Prepare statements of cash flows (indirect and direct method)

Graphic Company, Inc., has the following comparative balance sheet as of March 31, 2021.

Selected transaction data for the year ended March 31, 2021, include the following:

a. Net income, \$76,800

b. Paid long-term note payable with cash, \$59,600

c. Cash payments to employees, \$42,700

d. Loss on sale of land, \$9,200

e. Acquired equipment by issuing long-term note payable, \$14,200

f. Cash payments to suppliers, \$145,600

g. Cash paid for interest, \$3,000

h. Depreciation expense on equipment, \$13,100

i. Paid short-term note payable by issuing common stock, \$5,300

j. Paid cash dividends, \$45,600

k. Received cash for issuance of common stock, \$2,200

l. Cash received from customers, \$295,200

m. Cash paid for income taxes, \$11,600

n. Sold land for cash, \$52,300

o. Interest received (in cash), \$1,800

p. Purchased long-term investment for cash, \$2,900

Requirements

1. Prepare the statement of cash flows for Graphic Company, Inc., for the year ended March 31, 2021, using the indirect method for operating cash flows. Include a schedule of noncash investing and financing activities. All of the current accounts except short-term notes payable result from operating transactions.

2. Also prepare a schedule of cash flows from operations using the direct method.

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