Exercise #1
Cash flows
Examine the listed business activities and decide if each is to be classified as a:
O Cash flow from operating activity
I Cash flow from investing activity
F Cash flow from financing activity
NC Non-cash investing/financing activity
+/- inflows and outflows
F + Example isue bonds payable
(a) Issue common stock for land
(b) Issue common stock for cash
(c) Pay interest on loan
(d) Sell goods for cash
(e) Pay employee salaries
(f) Pay dividends to common shareholders
(g) Receive dividend on an investment
(h) Obtain proceeds of long-term loan
(i) Acquire treasury shares
(j) Purchase land for cash
(k) Buy inventory for resale
Exercise #2
Ozark Corporation reported net income of $100,000 for 20X5. The income statement revealed sales of
$1,000,000; gross profit of $520,000; selling and administrative costs of $340,000; interest expense of
$20,000; and income taxes of $60,000.

The selling and administrative expenses included $25,000 for depreciation. No equipment was sold
during the year. Equipment purchases were made with cash. Prepaid insurance included in the balance
sheet related to administrative costs. All accounts payable included in the balance sheet relate to
inventory purchases. The change in retained earnings is attributable to net income and dividends. The
increase in common stock and additional paid-in capital is due to issuing additional shares for cash.

Using the indirect approach, prepare a statement of cash flows for Ozark for the year ending December 31, 20X5. Comparative balance sheets for Ozark follow.

OZARK CORPORATION
Balance Sheet
December 31, 20X4 and 20X5

Assets 20X5 20X4 Change
Cash 4,58,700 4,71,450 (12,750)
Accounts receivable 1,99,250 1,71,500
Inventories 2,48,600 2,78,800
Prepaid insurance 13,000 11,000
Land 2,50,000 2,50,000
Building and equipment 15,00,000 13,00,000
Less: Accumulated depreciation (2,05,000) (1,80,000)
Total assets 24,64,550 23,02,750

Liabilities
Accounts payable 85,700 93,400
Interest payable 10,500 15,000
Income taxes payable 22,000 8,000
Stockholders’ equity
Common stock 7,10,000 7,00,000
Paid in capital in excess of par 9,90,000 9,00,000
Retained earnings 6,46,350 5,86,350
Total liabilities and equity 24,64,550 23,02,750
Exercise #3

Identify where each of the following items would be reported in the financial statements.

CA 1 Cash example
2 Loss on sale of investments in stock. Balance sheet
3 Unrealized gain on non-trading securities. CA Current assets
4 Fair value adjustment—trading CL Current liabilities
5 Interest earned on investments in bonds. INV Investments
6 Unrealized loss on trading securities LTL Long-term liabilities
7 Bonds payable PPE Property, plant, and equipment
8 Accumulated depreciation greater than one year SE Stockholders’ equity
9 Receivables due in one month IA Intangible assets
10 Payables Income statement
11 Interest earned on investments in bonds. ORG Other revenues and gains
12 Patent OEL Other expenses and losses
13 Investments in bonds.
14 Unrealized gain on Available for sale securities OCI Other comprehensive income
15 Copyright
16 Building
17 Mortgage
18 Note payable due in one month
Exercise #4

Presented below are long-term liability items for Suarez Company at December 31, 2014.
Prepare the long-term liabilities section of the balance sheet for Suarez Company.

Bonds payable, due 2016
$5,00,000

Mortgage liability due in one year $45,000
5,60,000 total

Notes payable, due 2019
80,000

Discount on bonds payable
42,000
Exercise #5

Twin Oak Corp has the following comparative balance sheet data.

Twin Oak Corp
Balance Sheet
December 31
2014 2013 2012
Cash $25,000 $20,000 $18,000
Receivables (net) 50,000 45,000 48,000
Prepaid Insurance 90,000 95,000 64,000
LT Investments 75,000 70,000 45,000
Plant and equipment (net) 4,00,000 3,70,000 3,58,000
$6,40,000 $6,00,000 $5,33,000
Current liabilities $70,000 $75,000 $70,000
Long-term debt 80,000 85,000 50,000
Common stock, $10 par 3,45,000 3,15,000 3,00,000 outstanding shares average
Retained Earnings 1,45,000 1,25,000 1,13,000 33,000 shares
$6,40,000 $6,00,000 $5,33,000

Twin Oak Corp
Income Statement
For the Year Ended December 31
2014 2013
Sales revenue $7,40,000 $7,00,000
Less: Sales returns and allowances 40,000 60,000
Net sales 7,00,000 6,40,000
Cost of goods sold 4,20,000 4,00,000
Gross profit 2,80,000 2,40,000
Operating expenses (including income taxes) 2,38,000 2,08,000
Net income $42,000 $32,000

Additional information:
The market price of the common stock was: $5.50 for 2012
$7.25 for 2013
$8.15 for 2014
All dividends are paid in cash
Compute for 2014
Compute for 2013 1 Profit margin
1 Profit margin 2 gross profit rate
2 gross profit rate 3 A/R turnover
3 A/R turnover 4 Inv turnover
4 Inv turnover 5 EPS
5 EPS 6 PE ratio
6 PE ratio 7 debt to total assets
7 debt to total assets 8 return on common equity
8 return on common equity 9 current ratio
9 current ratio 10 quick ratio
10 quick ratio

Based on these ratios discuss the financial position of Twin Oak Corp