4. When you create their Statement of Cash Flows, will you use the Direct or Ind

Question

4. When you create their Statement of Cash Flows, will you use the Direct or Indirect
method? Why? What additional information will you need from your client to be able to
create the Statement of Cash Flows?
5. What do you recommend they include in the notes to the statements? Write two of
these disclosures.
6. Of the information and data provided, what is most concerning? Why? Discuss at
least two items.
7. After reviewing the statements you’ve created, you realize that the company has not
included an allowance for accounts receivable amounts that might not be paid. What
data/information do you need them to supply to determine the appropriate amount?
What accounts will you debit and credit?
8. Calculate these ratios: current ratio, debt ratio, gross profit rate, price-earnings ratio,
ROA, ROE, and ROI. It is not necessary to describe the calculation, I’ll see how you
created it in your cell formula.
9. Based on the work you have completed, would you invest in this company? Provide
at least three reasons why you would or would not.

You are the accountant at CPA, LLP. Your client, Coastal Corp, is a retailer of water sports equipment. They have provided their financial data and you are responsible for creating their 2018 fiscal year financial statements. Below is their end of year data, in millions, alphabetizecd. Account Accounts payable Accounts receivable Accumulated depreciation: office equipment Additional paid-in capital (common stock) Bonds payable (due November 30, 2021) Cash Common stock (1,800 shares, $10 par value) Cost of goods sold Deferred income taxes Depreciation expense: office equipment Insurance expense Land Merchandise inventory Notes payable (due September 30, 2018) Office equipment Office supplies Office supplies expense Balance $12,750 2,600 12,000 13,000 22,500 19,200 18,000 100,575 5,750 2,750 520 39,500 17,500 2,500 41,000 900 900 ?0e???

Explanation / Answer

1a. We will use indirect method of preparing cash flow statement because the firm uses accrual based accounting. Direct method is used where you operate in cash and have few transactions to account in order to calculate the change in cash / remaining cash at the end of the year

1b. We will require
A. Last year's balance sheet in order to prepare cash flow statement because we need to calculate change in operating assets and liabilities to calculate change in operating cash flows
B. Fixed assets (Plant and Equipment schedule) to see depreciation, disposal of assets and fresh capital expenditures, loan schedule to see new financing taken, dividends information, etc.

2A . Notes to accounts should include the legal case filed by the employees about their injury even if the company believes they will likely settle the suit. Also that preferred stock are to be converted to 2 common stock each

2B. should include the aggreement with the new CEO about the interest free loan to build a new residence because that's not related to the company and needs to be disclosed to the investors

3A. The most concerning is conversion of preferred stock into 2 common stock each which is 500 new stock on 1800 existing stocks, this will take down company's EPS significantly (EPS = net income / shares outstanding)

3B. The second concerning thing about the company is the contingent payout to the new CEO and employees

4. Here the accounts receivables will become bad debt - we need the accounts receivable amount from the particular customer and the amount of it which is turning bad. The Bad Debts account is debited and accounts receivable (personal account of the customer) is credited

Please try other questions. Current ratio = current assets / current liabilities. Debt raio = debt / equity. gross profit rate = gross profit / sales.

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