Problem NO: 4

Michaels Company had available at the end of 2014 the information shown on the next page.\nMICHAELS COMPANY\nCOMPARATIVE BALANCE SHEETS\nAS OF DECEMBER 3

Michaels Company had available at the end of 2014 the information shown on the next page.

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MICHAELS COMPANY

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COMPARATIVE BALANCE SHEETS

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AS OF DECEMBER 31, 2014 AND 2013

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2014 2013

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Cash $ 10,000 $ 4,000

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Accounts receivable 20,500 12,950

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Short-term investments 22,000 30,000

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Inventory 42,000 35,000

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Prepaid rent 3,000 12,000

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Prepaid insurance 2,100 900

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Supplies 1,000 750

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Land 125,000 175,000

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Buildings 350,000 350,000

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Accumulated depreciation—buildings (105,000) (87,500)

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Equipment 525,000 400,000

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Accumulated depreciation—equipment (130,000) (112,000)

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Patents 45,000 50,000

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Total assets $910,600 $871,100

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Accounts payable $ 22,000 $ 32,000

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Income taxes payable 5,000 4,000

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Salaries and wages payable 5,000 3,000

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Short-term notes payable 10,000 10,000

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Long-term notes payable 60,000 70,000

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Bonds payable 400,000 400,000

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Premium on bonds payable 20,303 25,853

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Common stock 240,000 220,000

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Paid-in capital in excess of par—common stock 25,000 17,500

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Retained earnings 123,297 88,747

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Total liabilities and stockholders’ equity $910,600 $871,100

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MICHAELS COMPANY

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INCOME STATEMENT AND DIVIDEND INFORMATION

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FOR THE YEAR ENDED DECEMBER 31, 2014

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Sales revenue $1,160,000

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Cost of goods sold 748,000

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Gross margin 412,000

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Operating expenses

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Selling expenses $ 79,200

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Administrative expenses 156,700

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Depreciation/Amortization expense 40,500

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Total operating expenses 276,400

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Income from operations 135,600

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Other revenues/expenses

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Gain on sale of land 8,000

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Gain on sale of short-term investment 4,000

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Dividend revenue 2,400

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Interest expense (51,750) (37,350)

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Income before taxes 98,250

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Income tax expense 39,400

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Net income 58,850

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Dividends to common stockholders (24,300)

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To retained earnings $ 34,550

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Instructions

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Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are classified as available-for-sale.

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