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2008 and 2007 are presented below. PAT METHENY COMPANY COMPARATIVE
BALANCE SHEET AS OF DECEMBER 31, 2008 AND 2007 2008 2007 Cash $1,800
$1,150 Receivables 1,750 1,300 Inventory 1,600 1,900 Plant assets 1,900 1,700
Accumulated depreciation (1,200) (1,170) Long-term investments (Held-to-maturity)
1,300 1,420 $7,150 $6,300 Accounts payable $1,200 $ 900 Accrued liabilities 200 250
Bonds payable 1,400 1,550 Capital stock 1,900 1,700 Retained earnings 2,450 1,900
$7,150 $6,300 PAT METHENY COMPANY INCOME STATEMENT FOR THE YEAR
ENDED DECEMBER 31, 2008 Sales $6,900 Cost of goods sold 4,700 Gross margin
2,200 Selling and administrative expense 930 Income from operations 1,270 Other
revenues and gains Gain on sale of investments 80 Income before tax 1,350 Income tax
expense 540 Net income 810 Cash dividends 260 Income retained in business $ 550
Additional information: During the year, $70 of common stock was issued in exchange
for plant assets. No plant assets were sold in 2008. Instructions Prepare a statement of
cash flows using the indirect method.
Pat Metheny Company
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2008
(Indirect Method)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense ($1,200 $1,170)
Gain on sale of investments
Decrease in inventory
Increase in accounts payable
Increase in receivables
Decrease in accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities
Sale of held-to-maturity investments
[($1,420 $1,300) + $80]
Purchase of plant assets [($1,900 $1,700) $70]
Net cash provided by investing activities
Cash flows from financing activities
Issuance of capital stock [($1,900 $1,700) $70]
$ 810
$ 30
(80)
300
300
(450)
(50)
50
860
200
(130)
70
130
(150)
(260)
(280)
650
1,150
$1,800
70
E23-12 (SCFDirect Method) Data for Pat Metheny Company are presented in E23-11.
Instructions Prepare a statement of cash flows using the direct method. (Do not prepare a
reconciliation schedule.)
Pat Metheny Company
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2008
(Direct Method)
Cash flows from operating activities
Cash collections from customers
Less: Cash paid for merchandise
Cash paid for selling/administrative
expenses
Cash paid for income taxes
Net cash provided by operating activities
Cash flows from investing activities
Sale of held-to-maturity investments
[($1,420 $1,300) + $80]
Purchase of plant assets [($1,900 $1,700) $70]
Net cash provided by investing activities
Cash flows from financing activities
Issuance of capital stock [($1,900 $1,700) $70]
Retirement of bonds payable
Payment of cash dividends
Net cash used by financing activities
$6,450*
$4,100**
950***
540
5,590
860
200
(130)
70
130
(150)
(260)
(280)
650
1,150
$1,800
(b)
(c)
E6-10 (Unknown Periods and Unknown Interest Rate) Consider the following
independent situations. (a) Mike Finley wishes to become a millionaire. His money
market fund has a balance of $92,296 and has a guaranteed interest rate of 10%. How
many years must Mike leave that balance in the fund in order to get his desired
$1,000,000? (b) Assume that Serena Williams desires to accumulate $1 million in 15
years using her money market fund balance of $182,696. At what interest rate must
Serenas investment compound annually?
(a)
The number of interest periods is calculated by first dividing the future value
of $1,000,000 by $92,296, which is 10.83471the value $1.00 would
accumulate to at 10% for the unknown number of interest periods. The
factor 10.83471 or its approximate is then located in the Future value of 1
Table by reading down the 10% column to the 25-period line; thus, 25 is the
unknown number of years Jerry must wait to become a millionaire.
(b)
The unknown interest rate is calculated by first dividing the future value of
$1,000,000 by the present investment of $182,696, which is 5.47357the
70
Formulas:
PVOA = R (PVFOAn, i)
$572,000 = $80,000 (PVFOA12, i)
PVFOA12, i = $572,000 $80,000
PVFOA12, i = 7.15
FV = PV (FVFn, i)
PV = FV (PVFn, i)
or
FVF12, i
= $1,900,000 $572,000
PVF12, i
= $572,000 $1,900,000
FVF12, i
= 3.32168
PVF12, i
= .30105
Derek Lee, Inc. should choose alternative two since it provides a higher rate
of return.
b)
Formulas:
PVOA = R (PVFOAn, i)
$624,150 = $76,952 (PVFOA10, i)
PVOA10, i = $624,150 $76,952
PVOA10, i = 8.11090
c)
Formulas:
PVOA = R (PVFOAn, i)
PV = FV (PVFn, i)
PV = $600,000 (.61391)
PVOA = $185,321.52
PV = $368,346
d)
Formula:
FV = PV (FVFn, i)
FV = $300,000 (FVF40, 2%)
FV = $300,000 (2.68506)
FV = $805,518
FVOA = R (FVFOAn, i)
$494,482 = R (FVFOA40, 2%i)
$494,482 = R (67.40255)
R = $494,482 67.40255
R = $7,336.25