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.
Shown below is information relating to operations of Franco Corporation for the year ended 2019:
Net sales €2,750,000
Cost and expenses (including income taxes) 2,125,000
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)
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)
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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