Page 671 - Accounting Principles (A Business Perspective)

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Prepare a correct statement of cash flows using the indirect method that shows why National Sports, Inc., is
having such a difficult time keeping sufficient cash on hand. Also, answer the president's questions. The company
paid interest of USD 400 and income taxes of USD 3,000.

Business decision case B Following are comparative balance sheets for Hardiplank Siding, Inc.:
Hardiplank Siding, Inc.
Comparative Balance Sheets
2011 December 31, and 2010
2011 2010
Assets
Cash $ 80,000 $ 57,500
Accounts receivable, net 60,000 45,000
Merchandise inventory 90,000 52,500
Land 67,500 60,000
Buildings 90,000 90,000
Accumulated depreciation- (30,000) (27,000)
buildings
Equipment 285,000 225,000
Accumulated depreciation – (52,500) (48,000)
equipment
Goodwill 120,000 150,000
Total assets $710,000 $605,000
Liabilities and stockholders' equity
Accounts payable $ 95,000 $ 65,000
Accrued liabilities payable 30,000 22,500
Capital stock 315,000 300,000
Paid-in capital – stock dividends 75,000 67,500
Paid-in capital – land donations 15,000 -0-
Retained earnings 180,000 150,000
Total liabilities and stockholders' $710,000 $605,000
equity
An analysis of the Retained Earnings account for the year reveals the following:
Balance, 2011 January 1 $150,000
Add: Net income for the year 107,500
$257,500
Less: cash dividends $55,000
Stock dividends 22,500 77,500
Balance, 2011 December 31 $180,000
a. Equipment with a cost of USD 30,000 on which USD 27,000 of depreciation had been accumulated was sold
during the year at a loss of USD 1,500. Included in net income is a gain on the sale of land of USD 9,000.
b. The president of the company has set two goals for 2012: (1) increase cash by USD 40,000 and (2) increase
cash dividends by USD 35,000. The company's activities in 2012 are expected to be quite similar to those of 2011,
and no new fixed assets will be acquired.

Prepare a schedule showing cash flows from operating activities under the indirect method for 2011. Can the
company meet its president's goals for 2012? Explain.
Annual report analysis C Refer to the Annual report appendix. Evaluate the ease with which The Limited
will be able to maintain its dividend payments in the future at 2006 amounts. (Hint: Compare current dividend
amount with net cash provided by operating activities.)
Annual report analysis D Refer to "A broader perspective: Johnson & Johnson" and answer the following
questions:
a. Over the last three years from which major activities (operations, investing, financing) has Johnson &
Johnson received net cash inflows and on which major activities have they spent the funds?

b. What relationship do you see between "Depreciation and amortization of property and intangibles" and
"Additions of property, plant, and equipment"?

Accounting Principles: A Business Perspective 672 A Global Text