Extra-Ordinaire, Inc., Sells a single product (Pulsa) exclusively through newspaper advertising. The comparative income statements and balance sheets are for the past two years.

Additional Information

The following information regarding the company's operations in 2011 is available from the company's accounting records:

1. Early in the year the company declared and paid a $4.000 cash dividend.

2. During the year marketable securities costing $ 15.000 were sold for 5 11.000 cash, resulting in a $4.000 non-operating loss.

3. The company purchased plant assets for $20,000. paying $8.000 in cash and issuing a note payable for the $12,000 balance.

4. During the year the company repaid a $10,000 note payable, but incurred an additional

$12,000 in long-term debt as described in 3, above.

5. The owners invested $35,000 cash in the business as a condition of the new loans described in paragraphs 3 and 4, above.

Instructions

a. Prepare a worksheet for a statement of cash flows.

b. Prepare a formal statement of cash flows for 2011, including a supplementary schedule of noncash investing and financing activities.

c. Explain how Extra-Ordinaire, Inc., achieved positive cash flows from operating activities, despite incurring a net loss for the year.

d. Does the company's financial position appear to be improving or deteriorating? Explain.

e. Does Extra-Ordinaire, Inc., appear to be a company whose operations are growing or contracting? Explain.

f. Assume that management agrees with your conclusions in parts c, d, and e. What decisions should be made and what actions (if any) should be taken? Explain.

Transcribed Image Text:

EXTRA-ORDINARY, INC COMPARATIVE INCOME STATEMENT FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011 Sales Less: Cost of goods sold Gross profit on sales 2010 2011 $640,000 $410,000 310,000 190,000 330,000 220,000 Less: Operating expenses (including depreciation 260,000, 250,000 of $28,000 in 2010 and $29,000 in 2011) Loss on sale of marketable securities Net income (loss) 0 $ 70,000 4,000 (34,000) EXTRA0ORDINARY, INC. COMPARATIVE BALANCE SHEETS December 31, 2010 2011 Assets Cash and cash equivalents $ 22,000 $60,000 Marketable securities Accounts receivable Inventory Plant and equipment (net of accumulated depreciation) Totals Liabilities&Stockholders' Equity Accounts payable 27,000 12,000 Notes payable 40,000 35,000 120,000 128,000 250,000 241,000 $459,000 $476,000 50,000 70,000 Accrued expenses payable 16,000 14,000 235,000 237,000 Capital stock (no par value) 108,000 143,000 Retained earnings Totals 50,000 12,000 $459,000 $476,000 EXTRA-ORDINARY, INC COMPARATIVE INCOME STATEMENT FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2011 Sales Less: Cost of goods sold Gross profit on sales 2010 2011 $640,000 $410,000 310,000 190,000 330,000 220,000 Less: Operating expenses (including depreciation 260,000, 250,000 of $28,000 in 2010 and $29,000 in 2011) Loss on sale of marketable securities Net income (loss) 0 $ 70,000 4,000 (34,000) EXTRA0ORDINARY, INC. COMPARATIVE BALANCE SHEETS December 31, 2010 2011 Assets Cash and cash equivalents $ 22,000 $60,000 Marketable securities Accounts receivable Inventory Plant and equipment (net of accumulated depreciation) Totals Liabilities&Stockholders' Equity Accounts payable 27,000 12,000 Notes payable 40,000 35,000 120,000 128,000 250,000 241,000 $459,000 $476,000 50,000 70,000 Accrued expenses payable 16,000 14,000 235,000 237,000 Capital stock (no par value) 108,000 143,000 Retained earnings Totals 50,000 12,000 $459,000 $476,000

Answer rating: 100% (QA)

a Preparation of worksheet for a statement of cash flows as below ExtraOrdinaire Inc Worksheet for statement of cash flow for the year ended Dec 31 20... View the full answer