Flax Corp. uses the direct method to prepare its Statement of Cash Flows. Flax's trial balances at December 31, 20X4 and 20X3, are as follows:
Cash$ 35,000$ 32,000
Property, plant, & equipment100,00095,000
Unamortized bond discount4,5005,000
Cost of goods sold250,000380,000
General & administrative expenses137,000151,300
Income tax expense20,40061,200
Allowance for uncollectible accounts$ 1,300$ 1,100
Trade accounts payable25,00017,500
Income taxes payable21,00027,100
Deferred income taxes5,3004,600
8% callable bonds payable45,00020,000
Additional paid-in capital9,1007,500
Flax purchased $5,000 in equipment during 20X4.
Flax allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
What amounts should Flax report in its Statement of Cash Flows for the year ended December 31, 20X4, for cash paid for goods to be sold?
Two accounts are related to cost of goods sold: inventory and accounts payable.
Cost of goods sold $250,000
Less decrease in inventory (This represents an increase to cost of goods sold for inventory not purchased in the current period. Thus, the cash paid for inventory is less than cost of goods sold by this amount.) (16,000)
Less increase in accounts payable (This represents an increase in purchases and, therefore, cost of goods sold that was not paid for in the current period. Thus, the cash paid for inventory is less than cost of goods sold by this amount.) (7,500)
Equals cash paid for inventory $226,500
Lesson Reference: Statement of Comprehensive Income
Bloom Code: 3
Burns Corp. had the following items:
Sales revenue $45,000
Loss on early extinguishment of bonds 36,000
Realized gain on sale of available-for-sale debt securities 28,000
Unrealized holding loss on available-for-sale debt securities 17,000
Loss on write-down of inventory 3,100
Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss?
- $11,000 other comprehensive income
- $16,900 other comprehensive income
- $17,000 other comprehensive loss
- $28,100 other comprehensive loss
Other comprehensive income is comprised of
- unrealized gains/losses on available-for-sale debt securities,
- minimum pension liability adjustment,
- foreign currency translation adjustment, and
- unrealized gains/losses on cash flow hedges.
The only other comprehensive income item listed is the$17,000 unrealized gains/losses on available-for-sale debt securities
Lesson Reference: Consolidation Less than 100% Ownership
Bloom Code: 3
On January 1, year 1, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts. The fair value of the noncontrolling interest in Shaw on January 1, year 1, was $250,000. This value included the acquisition premium attributed to any goodwill. For the year ended December 31, year 1, Shaw had net income of $190,000 and paid cash dividends totaling $125,000.
In the December 31, year 1 consolidated balance sheet, noncontrolling interest should be reported at
The percentage of the subsidiary's stockholders' equity not owned by the parent represents the noncontrolling interest's share of the fair value of net assets of the subsidiary. The fair value of the noncontrolling interest is measured at the acquisition date and adjusted in future periods for the portion of the acquiree's income and dividends attributable to the noncontrolling interest. Therefore, the noncontrolling interest at 12/31/Y1 is calculated as follows:
Fair value of noncontrolling interests $250,000
Plus: Share of net income ($190,000 × 20%) 38,000
Less: Share of dividends ($125,000 × 20%) (25,000)
Noncontrolling interest 12/31/Y1 $263,000
Lesson Reference: Intercompany (I/C) Fixed Asset Transactions
Bloom Code: 2
An intercompany depreciable fixed asset transaction resulted in an intercompany gain. Which one of the following is least likely to be reflected in the consolidated financial statements prepared at the end of the period in which the intercompany transaction occurred?
- Consolidated income will be less than the sum of the incomes of the separate companies being combined.
- Consolidated assets will be less than the sum of the assets of the separate companies being combined.
- Consolidated depreciation expense will be more than the sum depreciation expense of the separate companies being combined.
- Consolidated accumulated depreciation will be more than the sum of accumulated depreciation of the separate companies being combined.
Consolidated depreciation expense will be less, not more, than the sum of depreciation expense of the separate companies being combined. Because the intercompany transaction resulted in again, the buying affiliate will have the asset on its books with the intercompany gain included in its carrying value and will depreciate that value on its books. For consolidated purposes, that depreciation on the intercompany gain will be eliminated, resulting in less depreciation expense than the sum of the depreciation expense of the separate companies.