Accounting II Task brief & rubrics

BCO123 Accounting II Task brief & rubrics

Task: Assignment 3 (33% of course grade)

You are asked to answer all the questions in the proposed three exercises.

This task assesses the following learning outcomes:

• Identify the steps of how irregular income items, such as discontinued operations and extraordinary items are presented in the income statement

• Understand the purpose and uses of a statement of cash flows

• Apply acquired knowledge and skills to prepare the statement of cash flows

LAUNCH: WEEK 4 Friday November 27th, 2020 / DELIVERY: WEEK 4 Sunday November 29th, 2020, 23:59hrs ON MOODLE

Submission file format: Word document with all the answers, clearly identifying each exercise separately.

Exercise 1:

Shown below is information relating to operations of Franco Corporation for the year ended 2019:

Continuing operations:

Net sales €2,750,000

Cost and expenses (including income taxes) 2,125,000

Other data:

Current-year loss generated by segment of the business discontinued in July (net of income taxes) €207,500

Gain on disposal of discontinued segment (net of income taxes) €137,500

Prior-period adjustment (decrease in prior years’ income net of tax benefit) €45,000

Extraordinary loss (net of income tax benefit) €17,500

Cash dividends declared (€1.50 per share) €150,000


a. Prepare a condensed income statement for 2019, including earnings per share figures. The company had 100,000 shares of a single class of capital stock

outstanding throughout the year. (10 points)

b. Prepare a statement of retained earnings for the year ended December 31, 2019. As originally reported, retained earnings at December 31, 2018, amounted

to €2,468,000. (10 points)

c. Compute the amount of cash dividend per share of common stock declared by the board of directors for 2019. Assume no dividends in arrears on the

preferred stock. (5 points)

d. Assume that 2020 earnings per share is a single figure and amounts to €7.00. Assume also that there are no changes in outstanding common or preferred

stock in 2020. Do you consider the €7.00 earnings per share figure in 2020 to be a favorable or unfavorable figure in comparison with 2019 performance?

Explain. (5 points)

Exercise 2:

Shown below is information from the financial statements of Tyler Company for 2019:

End of Year Beginning of


Accounts receivable €201,000 €221,000

Inventory €249,000 €233,000

Short-term prepayments €12,000 €9,500

Accounts payable (for merchandise) €177,000 €170,000

Accrued operating expenses payable €25,500 €33,200

Accrued income taxes payable €12,600 €15,500

Net sales €801,000

Cost of goods sold €465,000

Operating expenses (including depreciation of €40,000) €300,000

Income taxes expense €39,000


a. On the basis of the above information, prepare a partial statement of cash flows for Tyler Company, showing the computation of net cash flows from

operating activities by the indirect method. (15 points)

b. Identify three factors that may cause net income to differ from net cash flows from operating activities. (10 points)

c. Briefly explain the difference between the direct and indirect methods of computing net cash flows from operating activities. Which method results in higher

net cash flows? (10 points)

Exercise 3:

In order to prepare the statement of cash flows for Sphinx Corporation for 2019, the accountant has compiled the following data regarding cash flows:

Purchases of marketable securities €48,000

Proceeds from sales of marketable securities €75,000

Interest and dividends received €19,500

Interest paid €18,000

Taxes paid €43,500

Dividends paid €27,000

Proceeds from short-term borrowing €31,500

Payments to settle short-term debts (principal repaid) €36,000

Cash received from customers €681,000

Cash paid to suppliers and employees €531,000

Proceeds from issuing capital stock €118,500

Purchases of plant assets €201,000

Proceeds from sales of plant assets €58,500

Cash and cash equivalents, beginning of year €73,500


a. Based on the above information, prepare a complete statement of cash flows for Sphinx Corporation, showing the computation of net cash flows from operating

activities by the direct method. (15 points)

b. State the purposes of a statement of cash flows. (5 points)

c. Explain the relationship between the statement of cash flows and the income statement. (5 points)

d. Discuss some strategies for improvements in cash flow. (10 points)



9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts.

6-6.9 The student demonstrates some, but insufficient understanding of the concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or cheats.

Points are stated at the end of each question.

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