The Operating Cycle and Financial Statements Presented below is the year-end 2016 balance sheet for The Little Corporation Assets Current Cash Accounts receivable (net) Inventory Prepaid rent Total current assets Noncurrent Long-term investments Equipment Less Accum. depreciation THE LITTLE CORPORATION Balance Sheet December 31, 2016 Liabilities & Shareholders' Equity Current liabilities $510,000 Accounts payable $650,000 564,000 Wages payable 173,000 720,000 Interest payable 56,000 222,000 Total current liabilities 879,000 2,016,000 Noncurrent liabilities Bank loan 450,000 496,500 Bonds payable 1,950,000 $1,440,000 Total liabilities 3,279,000 (288,000) Shareholders' equity 1,152,000 Common stock 1,200,000 2,850,000 Retained earnings 1,548,000 (712,500) Total shareholders' equity 2,748,000 2,137,500 225,000 $6,027,000 Total liabilities & shareholders' equity $6,027,000 Machinery Less Accum. Depreciation Intangible assets (net) Total assets During 2017, the company entered into the following events: 1. Sales to customers totaled $2,000,000, of which $1,600,000 were on credit and the remainder was cash sales. The cost of goods sold totaled $800,000. 2. Purchased $700,000 of inventory on credit. 3. Paid $620,000 cash to employees as wages. (This amount includes the wages payable at December 31, 2016.) 4. Collected $1,750,000 cash from customers as payment on outstanding accounts receivable. 5. Paid $1,200,000 cash to suppliers on outstanding accounts payable. 6. Sold machinery for $120,000 cash on January 1, 2017. The machinery had cost $370,000 and at the time of sale it had a net book value of $160,000. 7. Paid miscellaneous expenses totaling $98,000 cash. 8. Sold common stock for $450,000 cash. 9. Invested $200,000 of excess cash in short-term marketable securities. 10. Declared and paid a cash dividend of $100,000. Required 1. Using the balance sheet equation as illustrated in this chapter, prepare a spreadsheet reflecting the events of The Little Corporation during 2017 Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers that reduce an account balance; expenses and losses, dividends, and accumulated depreciation. The Little Corporation Transaction (in thousands): : 12/31/16 1 2 3 4 5 5 Assets Cash $510 $ $ $ $ $ Marketable securities 564 720 222 496.5 1,440 (288) 2,850 (712.5) 225 $6,027 $ s $ $ $ $ $650 $ 173 56 Accounts receivable Inventory Prepaid rent Long-term investments Equipment Accum. depreciation - equipment (enter as negative) Machinery Accum. depreciation - machinerycenter as negative) Intangible assets (net) Total assets Liabilities Accounts payable Wages payable Interest payable Bank loan Bonds payable Total liabilities Shareholders' equity Common stock Retained earnings Revenue Cost of goods sold Wages expense Misc expense Rent expense Depr-equipment Depr - machinery Amortization expense Loss on sale Interest expense Dividends Total shareholders equity 450 1.950 $3,279 $ $ $ $ $ $1,200 $ 1,548 $2,748 As part of the year-end audit, the internal audit staff of The Little Corporation identified the following additional information: a. $180,000 of prepaid rent was consumed during the year. b. The equipment had a useful life of 10 years and the machinery of 20 years. The company uses straight-line depreciation. C. The intangible assets had a remaining useful life of 10 years. d. Interest on the bank loan and bonds payable was 10 percent. During the year, interest payments totaling $260,000 had been paid in cash. $ $ $ $ $ $ Required 1. Using the balance sheet equation, complete the spreadsheet reflecting the information found as part of the year-end audit. 2. Prepare the income statement for 2017. 3. Prepare the statement of shareholders' equity for 2017. 4. Prepare the balance sheet for 2017, 1. Using the balance sheet equation, complete the spreadsheet reflecting the information found as part of the year-end audit. Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers that reduce an account balance; expenses and losses, dividends, and accumulated depreciation. The Little Corporation Transaction in thousands): subtotal a b d 12/31/2017 Assets Cash $1,012 $ $ $ $ $ Marketable securities 200 Accounts receivable 414 $ Inventory 620 Prepaid rent 222 Long-term investments 496.5 $ Equipment 1,440 Accum. depreciation - equipment (288) Machinery 2,480 Accum. depreciation - machinery (502.5) $ Intangible assets (net) 225 Total assets $6,319 Liabilities Accounts payable $150 $ $ $ $ Wages payable Interest payable 56 Bank loan 450 Bonds payable 1,950 Total liabilities $2,606 Shareholders' equity Common stock $1,650 $1,650 Retained earnings 1,548 $ Revenue 2,000 Cost of goods sold (800) Wages expense (447) Misc expense (98) Rent expense Depr-equipment Depr - machinery Amortization expense Loss on sale (40) Interest expense Dividends (100) Total shareholders equity $3,713 $ $ $ $ $ $ $ $ $ 2. Prepare the income statement for 2017 using the information provided. Enter all numbers in $1,000s, rounding to one decimal place. Do not use negative signs with your answers unless to indicate a net loss. The Little Corporation Income Statement For the Year Ended 12/31/17 (in thousands) Sales $ Cost of goods sold Gross profit Expenses Wage expense $ Misc expense Rent expense Depr expense - equipment Depr expense-machinery Amortization expense Operating income (loss) Interest expense Loss on sale of machinery Net income (loss) $ 3. Prepare the statement of shareholders' equity for 2017. Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers to indicate a reduction in shareholders' equity (dividends, net loss, etc). The Little Corporation Statement of Shareholders' Equity For the Year Ended 12/31/17 Common Retained (in thousands) Stock Earnings Total Beginning balance $1,200 $1,548 $2,748 Net income (loss) Dividends declared Common stock issued 450 Balance at year-end $1,650 $ $ Cash 4. Prepare the balance sheet for 2017. Enter all numbers in $1,000s, rounding to one decimal place. Enter accumulated deprecation as negative numbers. Use a negative sign with your accumulated depreciation answers. The Little Corporation Balance Sheet 12/31/2017 (in thousands) Assets Liabilities and shareholders equity $ Liabilities Marketable securities Accounts payable $ Accounts receivable Wages payable Inventory Interest payable Prepaid rent Bank loan Total current assets Bonds payable Total liabilities Long-term investments Shareholders' equity Equipment Common stock Less: Accum depreciation (Enter as a negative number) Retained earnings Total shareholders' equity Machinery Less: Accum depreciation Intangible assets Total assets $ Total liabilities and shareholders equity $ Required Calculate the financial leverage for 2016 and 2017 Financial leverage ratio for 2016 and 2017. (Round two decimal places.) 2016 2017 2017 Transactions: 1. Sales to customers totaled $2,000,000, of which $1,600,000 were on credit and the remainder was cash sales. The cost of goods sold totaled $800,000. 2. Purchased $700,000 of inventory on credit. 3. Paid $620,000 cash to employees as wages. (This amount includes the wages payable at December 31, 2016.) 4. Collected $1,750,000 cash from customers as payment on outstanding accounts receivable. 5. Paid $1,200,000 cash to suppliers on outstanding accounts payable. 6. Sold machinery for $120,000 cash on January 1, 2017. The machinery had cost $370,000 and at the time of sale it had a net book value of $160,000. 7. Paid miscellaneous expenses totaling $98,000 cash. 8. Sold common stock for $450,000 cash. 9. Invested $200,000 of excess cash in short-term marketable securities. 10. Declared and paid a cash dividend of $100,000. 11. Interest on the bank loan and bonds payable was 10 percent. During the year, interest payments totaling $260,000 had been paid in cash. Required Using the information provided in the above transactions, prepare a statement of cash flow for 2017 Enter all numbers in the $1,000s rounding one decimal point. Use a negative sign with answers to indicate a decrease in cash. The Little Corporation Statement of Cash Flow For Year Ended 12/31/2017 (in thousands) Cash flow from operations Cash receipts: Cash collections on account Total cash receipts Cash disbursements: Cash payments on accounts payable for inventory Cash payments for wages Cash payments for miscellaneous expenses Total cash disbursements Cash flow from operations Cash flow from investing Marketable securities Cash flow from investing Cash flow from financing Sale of common stock Cash flow from financing Increase in cash Cash, beginning of year Cash, end of year $ Check The Operating Cycle and Financial Statements Presented below is the year-end 2016 balance sheet for The Little Corporation Assets Current Cash Accounts receivable (net) Inventory Prepaid rent Total current assets Noncurrent Long-term investments Equipment Less Accum. depreciation THE LITTLE CORPORATION Balance Sheet December 31, 2016 Liabilities & Shareholders' Equity Current liabilities $510,000 Accounts payable $650,000 564,000 Wages payable 173,000 720,000 Interest payable 56,000 222,000 Total current liabilities 879,000 2,016,000 Noncurrent liabilities Bank loan 450,000 496,500 Bonds payable 1,950,000 $1,440,000 Total liabilities 3,279,000 (288,000) Shareholders' equity 1,152,000 Common stock 1,200,000 2,850,000 Retained earnings 1,548,000 (712,500) Total shareholders' equity 2,748,000 2,137,500 225,000 $6,027,000 Total liabilities & shareholders' equity $6,027,000 Machinery Less Accum. Depreciation Intangible assets (net) Total assets During 2017, the company entered into the following events: 1. Sales to customers totaled $2,000,000, of which $1,600,000 were on credit and the remainder was cash sales. The cost of goods sold totaled $800,000. 2. Purchased $700,000 of inventory on credit. 3. Paid $620,000 cash to employees as wages. (This amount includes the wages payable at December 31, 2016.) 4. Collected $1,750,000 cash from customers as payment on outstanding accounts receivable. 5. Paid $1,200,000 cash to suppliers on outstanding accounts payable. 6. Sold machinery for $120,000 cash on January 1, 2017. The machinery had cost $370,000 and at the time of sale it had a net book value of $160,000. 7. Paid miscellaneous expenses totaling $98,000 cash. 8. Sold common stock for $450,000 cash. 9. Invested $200,000 of excess cash in short-term marketable securities. 10. Declared and paid a cash dividend of $100,000. Required 1. Using the balance sheet equation as illustrated in this chapter, prepare a spreadsheet reflecting the events of The Little Corporation during 2017 Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers that reduce an account balance; expenses and losses, dividends, and accumulated depreciation. The Little Corporation Transaction (in thousands): : 12/31/16 1 2 3 4 5 5 Assets Cash $510 $ $ $ $ $ Marketable securities 564 720 222 496.5 1,440 (288) 2,850 (712.5) 225 $6,027 $ s $ $ $ $ $650 $ 173 56 Accounts receivable Inventory Prepaid rent Long-term investments Equipment Accum. depreciation - equipment (enter as negative) Machinery Accum. depreciation - machinerycenter as negative) Intangible assets (net) Total assets Liabilities Accounts payable Wages payable Interest payable Bank loan Bonds payable Total liabilities Shareholders' equity Common stock Retained earnings Revenue Cost of goods sold Wages expense Misc expense Rent expense Depr-equipment Depr - machinery Amortization expense Loss on sale Interest expense Dividends Total shareholders equity 450 1.950 $3,279 $ $ $ $ $ $1,200 $ 1,548 $2,748 As part of the year-end audit, the internal audit staff of The Little Corporation identified the following additional information: a. $180,000 of prepaid rent was consumed during the year. b. The equipment had a useful life of 10 years and the machinery of 20 years. The company uses straight-line depreciation. C. The intangible assets had a remaining useful life of 10 years. d. Interest on the bank loan and bonds payable was 10 percent. During the year, interest payments totaling $260,000 had been paid in cash. $ $ $ $ $ $ Required 1. Using the balance sheet equation, complete the spreadsheet reflecting the information found as part of the year-end audit. 2. Prepare the income statement for 2017. 3. Prepare the statement of shareholders' equity for 2017. 4. Prepare the balance sheet for 2017, 1. Using the balance sheet equation, complete the spreadsheet reflecting the information found as part of the year-end audit. Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers that reduce an account balance; expenses and losses, dividends, and accumulated depreciation. The Little Corporation Transaction in thousands): subtotal a b d 12/31/2017 Assets Cash $1,012 $ $ $ $ $ Marketable securities 200 Accounts receivable 414 $ Inventory 620 Prepaid rent 222 Long-term investments 496.5 $ Equipment 1,440 Accum. depreciation - equipment (288) Machinery 2,480 Accum. depreciation - machinery (502.5) $ Intangible assets (net) 225 Total assets $6,319 Liabilities Accounts payable $150 $ $ $ $ Wages payable Interest payable 56 Bank loan 450 Bonds payable 1,950 Total liabilities $2,606 Shareholders' equity Common stock $1,650 $1,650 Retained earnings 1,548 $ Revenue 2,000 Cost of goods sold (800) Wages expense (447) Misc expense (98) Rent expense Depr-equipment Depr - machinery Amortization expense Loss on sale (40) Interest expense Dividends (100) Total shareholders equity $3,713 $ $ $ $ $ $ $ $ $ 2. Prepare the income statement for 2017 using the information provided. Enter all numbers in $1,000s, rounding to one decimal place. Do not use negative signs with your answers unless to indicate a net loss. The Little Corporation Income Statement For the Year Ended 12/31/17 (in thousands) Sales $ Cost of goods sold Gross profit Expenses Wage expense $ Misc expense Rent expense Depr expense - equipment Depr expense-machinery Amortization expense Operating income (loss) Interest expense Loss on sale of machinery Net income (loss) $ 3. Prepare the statement of shareholders' equity for 2017. Enter all numbers in $1,000s, rounding to one decimal place. Use a negative sign with answers to indicate a reduction in shareholders' equity (dividends, net loss, etc). The Little Corporation Statement of Shareholders' Equity For the Year Ended 12/31/17 Common Retained (in thousands) Stock Earnings Total Beginning balance $1,200 $1,548 $2,748 Net income (loss) Dividends declared Common stock issued 450 Balance at year-end $1,650 $ $ Cash 4. Prepare the balance sheet for 2017. Enter all numbers in $1,000s, rounding to one decimal place. Enter accumulated deprecation as negative numbers. Use a negative sign with your accumulated depreciation answers. The Little Corporation Balance Sheet 12/31/2017 (in thousands) Assets Liabilities and shareholders equity $ Liabilities Marketable securities Accounts payable $ Accounts receivable Wages payable Inventory Interest payable Prepaid rent Bank loan Total current assets Bonds payable Total liabilities Long-term investments Shareholders' equity Equipment Common stock Less: Accum depreciation (Enter as a negative number) Retained earnings Total shareholders' equity Machinery Less: Accum depreciation Intangible assets Total assets $ Total liabilities and shareholders equity $ Required Calculate the financial leverage for 2016 and 2017 Financial leverage ratio for 2016 and 2017. (Round two decimal places.) 2016 2017 2017 Transactions: 1. Sales to customers totaled $2,000,000, of which $1,600,000 were on credit and the remainder was cash sales. The cost of goods sold totaled $800,000. 2. Purchased $700,000 of inventory on credit. 3. Paid $620,000 cash to employees as wages. (This amount includes the wages payable at December 31, 2016.) 4. Collected $1,750,000 cash from customers as payment on outstanding accounts receivable. 5. Paid $1,200,000 cash to suppliers on outstanding accounts payable. 6. Sold machinery for $120,000 cash on January 1, 2017. The machinery had cost $370,000 and at the time of sale it had a net book value of $160,000. 7. Paid miscellaneous expenses totaling $98,000 cash. 8. Sold common stock for $450,000 cash. 9. Invested $200,000 of excess cash in short-term marketable securities. 10. Declared and paid a cash dividend of $100,000. 11. Interest on the bank loan and bonds payable was 10 percent. During the year, interest payments totaling $260,000 had been paid in cash. Required Using the information provided in the above transactions, prepare a statement of cash flow for 2017 Enter all numbers in the $1,000s rounding one decimal point. Use a negative sign with answers to indicate a decrease in cash. The Little Corporation Statement of Cash Flow For Year Ended 12/31/2017 (in thousands) Cash flow from operations Cash receipts: Cash collections on account Total cash receipts Cash disbursements: Cash payments on accounts payable for inventory Cash payments for wages Cash payments for miscellaneous expenses Total cash disbursements Cash flow from operations Cash flow from investing Marketable securities Cash flow from investing Cash flow from financing Sale of common stock Cash flow from financing Increase in cash Cash, beginning of year Cash, end of year $ Check