Question

Neighborhood Supermarkets is preparing to go public, and you are asked to assist the firm by preparing its statement of cash flows for 2014. Neighborhood's balance sheets at December 31, 2013 and December 31, 2014, and its income statement for the year ending December 31, 2014, appear below.


Additional Information:
a. The only entries in retained earnings for 2014 were for net income and cash dividends.
b. During 2014, bad debt expenses of $906 were included in operating, general, and administrative expenses; no accounts were written off.
c. Adjusting marketable securities upward by $68 led to the increase of $44 in accumulated other comprehensive income, after considering the deferred tax effect of $24.
d. On July 1, 2014, Neighborhood Supermarkets bought land ($190) and equipment ($20,000), paying $10,190 in cash and issuing a $10,000 five-year note payable with interest at 6% pay able annually. Accrued interest on the note was included in operating, general, and administrative expenses because the amount was deemed too immaterial to report separately.
e. No treasury stock was reissued during 2014.
f. Equipment costing $9,052 with a book value of $1,051 was sold for cash.
g. A much smaller competitor was acquired on December 31, 2014, for $34,890 cash and a 7%, $15,000 note that matures in two years. Neighborhood allocated the acquisition cost as follows: inventory, $5,500; intangibles, $5,926; equipment, $16,195; leasehold im provements, $2,829; goodwill, $19,440.
Required:
Use the indirect method to prepare Neighborhood Supermarkets' statement of cash flows for 2014. Use the worksheet approach from the appendix.
The balance sheets of Global Trading Company follow:
Additional Information:
• The company reported a net loss of $279,500 during 2014.
• There are no income taxes.
• Goodwill as of December 31, 2013, was part of an acquisition made during 2013.
• The company's bank provides a working capital loan to a maximum of 75% of net accounts receivable and inventory.

Required:
1. Prepare a statement of cash flows using the indirect method for the year ended December 31, 2014.
2. On the basis of available information, assess the financial performance of the company during 2014. In answering this part, consider both the net income and cash flows of the company. Also evaluate the future prospects of the company.
3. Assuming that the bad debt expense during 2014 was $55,000, calculate the amount of bad debts written off during the year. Further assume that the company collected
$1,250,000 cash from its customers during 2014, and then compute the sales revenue for the year. You may assume that all sales are credit sales.
4. In answering this part, assume that Global uses the first-in, first-out (FIFO) inventory method. On December 31, 2014, the company purchased $35,000 worth of inventory on credit from a supplier. The transaction was inadvertently not recorded because physical possession was not obtained as of December 31, 2014. Discuss the effect of this omission on Global Trading Company's financialstatements.


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  • CreatedSeptember 10, 2014
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