Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie™ fashion dolls and accessories, Hot Wheels™, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands):
First quarter ending March 31 $ (41,844)Second quarter ending June 30 (184,934)Third quarter ending September 30 (55,548)Fourth quarter ending December 31 955,600Explain why Mattel reported negative net cash flows from operating activities during the first three quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.Answer:Toy manufacturers and retailers experience a seasonal trend in cash flows from operating activities. Mattel, Inc., experiences negative cash flows during the periods when merchandise is ordered for the holiday season. Mattel, Inc., generates positive cash flows during the holiday season, November–December. As a result, Mattel, Inc., reports overall positive net cash flows from operating activities for the year.
Journalize the entries to record the following:a. Check No. 33694 is issued to establish a petty cash fund of $900.b. The amount of cash in the petty cash fund is now $70. Check No. 33749 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, $525; miscellaneous selling expense, $190; miscellaneous administrative expense, $85. (Since the amount of the check to replenish the fund plus the balance in the fund do not equal $900, record the discrepancy in the cash short and over account.)Answer:
a. Petty Cash 900Cash 900
b. Office Supplies 525Miscellaneous Selling Expense 190Miscellaneous Administrative Expense 85Cash Short and Over 30Cash 830
During 2014, El Dorado Inc. has monthly cash expenses of $168,500. On December 31, 2014, the cash balance is $1,415,400.a. Compute the ratio of cash to monthly cash expenses.b. Based on (a), what are the implications for El Dorado Inc.?Answer:a. 8.4 months ($1,415,400 ÷ $168,500)b. At the current rate of operations, El Dorado has 8.4 months of cash remaining. El Dorado should either restructure its operations or begin planning on raising additional financing in order to continue in business.
Capstone Turbine Corporation produces and sells turbine generators for such applications as charging electric, hybrid vehicles. Capstone Turbine reported the following financial data for a recent year (in thousands):Net cash flows from operating activities $(21,899)Cash and cash equivalents 33,456a. Determine the monthly cash expenses. Round to one decimal place.b. Determine the ratio of cash to monthly cash expenses. Round to one decimal place.c. Based on your analysis, do you believe that Capstone Turbine will remain in business?Answer:a. $1,824.9 ($21,899 ÷ 12)b. 18.3 months ($33,456 ÷ $1,824.9)c. Capstone Turbine has cash to continue its operations for approximately 18.3 months.
Boeing is one of the world’s major aerospace firms, with operations involving commercial aircraft, military aircraft, missiles, satellite systems, and information and battle management systems. As of a recent year, Boeing had $2,969 million of receivables involving U.S. government contracts and $1,241 million of receivables involving commercial aircraft customers, such as Delta Air Lines and United Airlines.Should Boeing report these receivables separately in the financial statements, or combine them into one overall accounts receivable amount? Explain.Answer:Accounts receivable from the U.S. government are significantly different from receivables from commercial aircraft carriers such as Delta and United. Thus, Boeing should report each type of receivable separately. In its filing with the Securities and Exchange Commission, Boeing reports the receivables together on the balance sheet, but discloses each receivable separately in a note to the financial statements.
Allos Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of cancer. Allos Therapeutics reported the following financial data (in thousands) for three recent years:
For Years Ended December 31Year 3 Year 2 Year 1Cash and cash equivalents $ 48,402 $141,423 $30,696Net cash flows from operations (63,656) (62,199) (42,850)a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place.c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.Answer:a. Year 3: $5,304.7 per month ($63,656 ÷ 12)Year 2: $5,183.3 per month ($62,199 ÷ 12)Year 1: $3,570.8 per month ($42,850 ÷ 12)b. Year 3: 9.1 months ($48,402 ÷ $5,304.7)Year 2: 27.3 months ($141,423 ÷ $5,183.3)Year 1: 8.6 months ($30,696 ÷ $3,570.8)c. Since Year 1, Allos Therapeutics monthly cash expenses have increased from $3,570.8 in Year 1 to $5,304.7 in Year 3. The ratio of cash to monthly cash expenses has increased from 8.6 months at the end of Year 1, to 27.3 months at the end of Year 2. Allos Therapeutics increased its monthly cash expenses in Year 3 to $5,304.7 per month and at the end of Year 3 it will run out of cash in just over nine months assuming it doesn’t change its operations or raise additional financing. Unless the company improves its cash flows, it may have difficulty raising sufficient cash from investors or creditors to continue operations in the long term.
At the end of the current year, the accounts receivable account has a debit balance of $6,125,000 and net sales for the year total $66,800,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions:a. The allowance account before adjustment has a debit balance of $18,000. Bad debt expense is estimated at ¾ of 1% of net sales.b. The allowance account before adjustment has a debit balance of $18,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $475,000.c. The allowance account before adjustment has a credit balance of $10,000. Bad debt expense is estimated at ½ of 1% of net sales.d. The allowance account before adjustment has a credit balance of $10,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $360,000.Answer:a. $501,000 ($66,800,000 × 0.0075)b. $493,000 ($475,000 + $18,000)c. $334,000 ($66,800,000 × 0.0050)d. $350,000 ($360,000 – $10,000)
Journalize the following transactions in the accounts of Pro Medical Co., a medical equipment company that uses the direct write-off method of accounting for uncollectible receivables:Jan. 30. Sold merchandise on account to Dr. Cindy Mott, $85,000. The cost of the merchandise sold was $50,000.June 3. Received $48,000 from Dr. Cindy Mott and wrote off the remainder owed on the sale of January 30 as uncollectible.Nov. 27. Reinstated the account of Dr. Cindy Mott that had been written off on June 3 and received $37,000 cash in full payment.Answer:
Jan. 30 Accounts Receivable—Dr. Cindy Mott 85,000Sales 85,00030 Cost of Merchandise Sold 50,000Merchandise Inventory 50,000June 3 Cash 48,000Bad Debt Expense 37,000Accounts Receivable—Dr. Cindy Mott 85,000Nov. 27 Accounts Receivable—Dr. Cindy Mott 37,000Bad Debt Expense 37,00027 Cash 37,000Accounts Receivable—Dr. Cindy Mott 37,000
Journalize the following transactions in the accounts of Lamp Light Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables:Mar. 19. Sold merchandise on account to Midnight Delights Co., $37,500. The cost of the merchandise sold was $23,000.Aug. 31. Received $22,000 from Midnight Delights Co. and wrote off the remainder owed on the sale of March 19 as uncollectible.Dec. 22. Reinstated the account of Midnight Delights Co. that had been written off on August 31 and received $15,500 cash in full payment.Answer:
Mar. 19 Accounts Receivable—Midnight Delights Co. 37,500Sales 37,50019 Cost of Merchandise Sold 23,000Merchandise Inventory 23,000Aug. 31 Cash 22,000Allowance for Doubtful Accounts 15,500Accounts Receivable—Midnight Delights Co. 37,500Dec. 22 Accounts Receivable—Midnight Delights Co. 15,500Allowance for Doubtful Accounts 15,50022 Cash 15,500Accounts Receivable—Midnight Delights Co. 15,500
Creative Solutions Company, a computer consulting firm, has decided to write off the $11,750 balance of an account owed by a customer, Wil Treadwell. Journalize the entry to record the writeoff, assuming that (a) the direct write-off method is used and (b) the allowance method is used.Answer:
a. Bad Debt Expense 11,750Accounts Receivable—Wil Treadwell 11,750b. Allowance for Doubtful Accounts 11,750Accounts Receivable—Wil Treadwell 11,750
A diesel-powered tractor with a cost of $214,000 and estimated residual value of $30,000 is expected to have a useful operating life of 50,000 hours. During January, the tractor was operated 175 hours. Determine the depreciation for the month.Answer:
$214,000 – $30,00050,000 hours= $3.68 depreciation per hour175 hours at $3.68 = $644 depreciation for January
Quality Move Company made the following expenditures on one of its delivery trucks:Mar. 20. Replaced the transmission at a cost of $1,890.June 11. Paid $1,350 for installation of a hydraulic lift.Nov. 30. Paid $55 to change the oil and air filter.Prepare journal entries for each expenditure.Answer:
Mar. 20 Accumulated Depreciation—Delivery Truck 1,890Cash 1,890June 11 Delivery Truck 1,350Cash 1,350Nov. 30 Repairs and Maintenance Expense 55Cash 55
A Kubota tractor acquired on January 6 at a cost of $90,000 has an estimated useful life of 20 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years (a) by the straight-line method and (b) by the doubledeclining-balance method.Answer:
a.First Year5% of $90,000 = $4,500or$90,000 ÷ 20 = $4,500Second Year5% of $90,000 = $4,500or$90,000 ÷ 20 = $4,500b. 10% of $90,000 = $9,000 10% of ($90,000 – $9,000) = $8,100
A storage tank acquired at the beginning of the fiscal year at a cost of $240,000 has an estimated residual value of $30,000 and an estimated useful life of 25 years. Determine the following: (a) the amount of annual depreciation by the straight-line method and (b) the amount of depreciation for the first and second years computed by the doubledeclining-balance method.Answer:a.4% of ($240,000 – $30,000) = $8,400 or [($240,000 – $30,000)/25]b.Year 1: 8% of $240,000 = $19,200Year 2: 8% of ($240,000 – $19,200) = $17,664
