Chapter 5, Problem 3DQ

Conduct a horizontal and vertical analysis of the company’s financial statements to identify trends and patterns over the past two years. Provide an analysis of the company’s financial performance, for shareholders and potential investors, using the trends identified in (a) above and in the context of market and other trends and expectations mentioned in the MDA section of the Annual Report.  Briefly explain how the analysis at (b) would be modified if it was prepared for stakeholders other than shareholders and investors. Do not use cash on hand and net income after taxation

Which of the following statements regarding accounting methods is false? A. A C corporation with gross receipts of more than $5 million per year must use the cash method of accounting. B. A sole proprietorship may generally use the cash receipts and disbursements method of accounting unless the business maintains inventory, and gross receipts for the three prior tax periods averages $29 million or less in 2023 ($27 million in 2022 and $26 million in 2019, 2020 and 2021). C. A limited liability company may use the cash method of accounting unless it has elected to be taxed as a corporation, in which its method of accounting may be restricted. D. An S corporation may use the cash method of accounting unless it maintains inventory, and gross receipts for the three prior tax periods averages $29 million or less in 2023 ($27 million in 2022 and $26 million in 2019, 2020 and 2021.

Quartz Corporation had retained earnings balances of $480,000 and $400,000 at the beginning and ending of the year, respectively. If revenues were $300,000 and expenses were $150,000, how much were dividends for the year assuming no other transactions affected retained earnings?

Jim Sox Company owns debt securities classified as available for sale which were acquired in 2019 at face value of $17 million. During 2021, the fair value of those securities increased by $220,000. How should the accountants for Jim Sox Company report this increase in Sox’s 2021 statement of cash flows using the indirect presentation of cash flows from operating activities?   a. As a positive cash flow from investing activities b. As a negative adjustment to reconcile net income to net cash from operating activities c. As a positive cash flow from financing activities d. the increase will not be reported on the statement of cash flows using the indirect presentation of cash flows from operating activities

With respect to GRIP and LRIP balances, which of the following statements is NOT correct? A CCPC'S GRIP account is increased by 72% percent of the company's taxable income. A CCPC'S GRIP account is reduced by the amount of eligible dividends designated in the preceding taxation year.  A CCPC'S GRIP account is increased by the amount of eligible dividends received during the current year. A public company's LRIP account is increased by the amount of non-eligble dividends received.

For the year ended December 31, 2021, a corporation had cash flow provided by operating activities of P40,000, cash flow used by investing activities of P30,000, and cash flow used by financing activities of P20,000. The Statement of Cash Flows would show a: a. net decrease of P10,000 in cash and cash and cash equivalents   b. net increase of P10,000 in cash and cash and cash equivalents c. net decrease of P30,000 in cash and cash and cash equivalents d. net increase of P50,000 in cash and cash equivalents e. none of the above

For the current year, Vidalia Company reported revenues of 250,000 and expenses of 225,000. At the beginning of the year, its retained earnings had a balance of 95,000. During the year, Vidalia paid 11,000 dividends to shareholders. Its contributed capital was 56,000 at the beginning of the year, and it did not issue any new stock during the year. Vidalias assets total 237,500 on December 31 of the current year. What are Vidalias total liabilities on December 31 of the current year?

Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the companys just completed financial statements. The following discussion took place between Lucas Hunter and Simmons controller, John Jameson, in January, after the close of the fiscal year: Lucas: Ive been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This wont look good to our shareholders. Is there anything we can do about this? John: What do you mean? The past is the past, and the numbers are in. There isnt much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I dont see much leeway for significant change at this point. Lucas: No, no. Im not suggesting that we cook the books. But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good newsand, I might add, useful information. The higher cash flow from operating activities will give our creditors comfort. John: Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there. Lucas: This is true, but somehow I think this information should be given a much higher profile. I dont like this information being buried in the statement of cash flows. You know as well as I do that many users will focus on the income statement. Therefore, I think we ought to include an operating cash flow per share number on the face of the income statementsomeplace under the earnings per share number. In this way, users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think? John: Ive never really thought about it like that before. I guess we could put the operating cash flow per share on the income statement, underneath the earnings per share amount. Users would really benefit from this disclosure. Thanks for the ideaIll start working on it. Lucas: Glad to be of service. How would you interpret this situation? Is John behaving in an ethical and professional manner?

For Belzcr Corporation, the working capital at the end of the current year is $24,000 more than the working capital at the end of the preceding year, reported as follows: