QuestionQuestion

Q1
Will the income statement include the profits or losses from the purchase and sale of treasury stock? Yes or No?
Q2
Explain the effect on Cash Received and Interest Expense Recognized when
A. Bonds are issued at Face Value
B. Bonds are issued at a discount
C. Bonds are issued at a premium
(Hint: your answer for each independent situation [A, B, and C] should include the phrases “Credit to Bonds Payable” and “Contract Interest Rate”)
Q3
Explain how the balance sheet and income statement of a company are affected in each of the following independent situations when the investment is accounted for using the equity method:
A. The company they invested in earns a profit for the year
B. The company they invested in has a net loss for the year
C. The company they invested in pays a cash dividend
Q4
Explain the relationship between the balance sheet, the income statement, and the statement of cash flows using the indirect method. That is, how do you prepare a statement of cash flows using the indirect method? Don’t use numbers but explain the mathematical calculations and line items.
Q5
What do we learn by using the vertical analysis process for a company when analyzing the income statement and the balance sheet? That is, how would you explain to someone what you learn about a company by completing a vertical analysis of their SEC 10K income statement and balance sheet?
Q6 Preparing a statement of cash flows using the indirect method:
ABC Company’s comparative balance sheets are presented below.
ABC Company
ABC Company
Comparative Balance Sheets
December 31
                                                             2015                   2014
Cash                                                 $34,330               $10,820
Accounts receivable                            21,010               23,630
Land                                                    19,680               25,610
Buildings                                              69,730               69,730
Accumulated depreciation—buildings (15,130 )          (10,510 )
Total                                                   $129,620            $119,280
Accounts payable                              $12,650             $31,220
Common stock                                     94,890               68,020
Retained earnings                               22,080               20,040
Total                                                    $129,620            $119,280

Additional information:
1. Net income was $22,124. Dividends declared and paid were $20,084.
2. All other changes in noncurrent account balances had a direct effect on cash flows, except the change in accumulated depreciation. The land was sold for $4,700.
Required: Prepare a statement of cash flows for the year ended December 31, 2015 using the indirect method. (Hint: for any accounts where the balance changed, create a T account or record other analysis for your review. You might make a column of changes, so you can see if a balance increased or decreased and by how much.

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Q1.
NO. All transactions related to treasury stock are confined to the balance sheet and do not appear in the income statement. Any profits or losses realized from sale of treasury stock are either charged to the retained earnings account or to the additional paid-in capital account.

Q2.
A. Bonds are issued at Face Value
When bonds are issued at face value, the total amount of money received from the sale of the bonds is debited to the cash account, while the bonds face value is credited to the bonds payable account. With regard to the interest expense recognized, the bond interest expense is debited by the amount of interest expense paid while the cash account is credited by the amount of money paid in interest for that period....
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