Statement of cash flows – indirect method, financial statement analysis

The following information is available from the Carson Company accounting records:

1)	Cash account balances: January 1, 2008, $43,000; December 31, 2008, $18,000.
2)	The balance in accounts receivable decreased by $10,000 during the year from $60,000. The company had no short-term investments.
3)	Inventory increased $9,000 to $80,000.
4)	Accounts payable increased $3,000 during the year to $32,000. Income tax payable increased $4,000 during the year to $8,000. Wages payable decreased by $5,000 to $4,000. There were no other current liabilities.
5)	During December 2008, the company settled a $10,000 note payable by issuing shares of its own capital stock with equivalent value.
6)	Cash expenditures during 2008 were: a. payment of long-term debts, $64,000; b. purchase of new operational assets, $74,000; c. payment of a cash dividend, $16,000; d. purchase of land as an investment, $25,000.
7)	Sale and issuance of Carson Company capital stock for $20,000 cash.
8)	Issuance of long-term mortgage note, $30,000.
9)	Sale of some old operational assets resulting in the following entry:
10)	Income statement data:

Dollar-value LIFO method

Part A:
Gant Company has a beginning inventory in year one of $300,000 and an ending inventory of $363,000. The price level has increased from 100 at the beginning of the year to 110 at the end of year one. Calculate the ending inventory under the dollar-value LIFO method.

Part B
At the end of year two, Gant's inventory is $437,000 in terms of a price level of 115 which exists at the end of year two. Calculate the inventory at the end of year two continuing the use of the dollar-value LIFO method.

Solutions

Inventory loss due to fire

The inventory of Charlie Angel Company had destroyed when a fire swept through the company's warehouse. Fortunately, the accounting records were locked in a fireproof safe and were not damaged. The following information for the period up to the date of the fire was taken from the accounting records:

Insturction

(1) Assuming that the gross profit has averaged 25 percent of selling price, what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form.

(2) Assuming that the markup percentage on cost is 28 percent, what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form.

Solutions

Analysis of gross profit

During 2007, Henry Sam Company experienced a significant increase in the rate of gross profit on sales, compared with the rate it has averaged in recent years. You are asked to determine the most likely reason for this improvement. Support your answer.

The following data are from the records of the company:

• 2007 sales (at an average price of $40 a unit) were $1,800,000.
• 2007 purchases (at an average cost of $24 a unit) were $960,000.
• The company uses the LIFO inventory method and has used it since 1982.

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