Question 5. “Look how great we are doing,” said Sawyer Mittlestaedt, president of Elliott Company. “Our sales have grown from $1.6 million to $2.0 million this year, we about doubled our warehouse space, and we have more cash in the bank than we started with. A few more years of growth like this and we’ll be tops in the industry.” “Yes, our statements look pretty good,” replied Endia Bush, the company’s vice president for finance. “But I have concerns that we’re doing business with a lot of companies we don’t know much about. But I do agree, we’re certainly selling a lot of merchandise; our inventory is actually down from last year.” See statements on next page. Elliott Company Comparative Balance Sheets At December 31, 2015 and 2014      2015 2014 Assets Current assets: Cash. $42,000 $     27,000 15000 incr Marketable securities   19,000        13,000 Accounts receivable. 710,000      530,000 Inventory  848,000 860,000 Prepaid expenses    10,000 5,000 Total current assets 1,435,000  1,629,000 Long-term investments  60,000 110,000  Loans to subsidiaries 130,000 80,000  Plant and equipment   3,170,000 2,600,000   Less accumulated depreciation    810,000 755,000  Net plant and equipment    2,360,000 1,845,000  Patents  84,000 90,000  Total assets  $4,263,000 $3,560,000  Liabilities and Stockholders’ Equity Current liabilities :   Accounts payable $   970,000 $   670,000   Accrued liabilities 65,000  82,000  Total current liabilities   1,035,000 752,000 Long-term Bonds Payable 820,000 600,000 Notes payable 95,000 80,000  Total liabilities 1,950,000 1,432,000 Stockholders’ equity:   Common stock   1,740,000 1,650,000   Retained earnings . 573,000 478,000  Total stockholders’ equity   2,313,000 2,128,000  Total liabilities and stock $4,263,000 3,560,000 Elliott’s income statement for 2015 follows Sales $2,000,000 Cost of goods sold  1,300,000   Gross profit 700,000 Selling and administrative expenses 490,000   Net operating income 210,000 Nonoperating items:   Gain on sale of investments  $60,000   Loss on sale of equipment. 20,000 40,000 Income before taxes   250,000 Income taxes 80,000   Net income   $   170,000   The following additional information is available about Elliott’s activities during 2015: Cash dividends declared and paid to the common stockholders totaled $75,000. Long-term BONDS with a value of $380,000 were repaid during the year. Equipment was sold during the year for $70,000. The equipment had cost $130,000 and had $40,000 in accumulated depreciation on the date of sale. Long-term investments were sold during the year for $110,000. These investments had cost $50,000 when purchased several years ago. 5-1. Ms. Bush asks you to prepare a statement of cash flow (indirect method) for 2015. 5-2. What is Elliott’s free cash flow? Interpret your findings. 5-3. Is Elliott Corp. doing as well as its CEO believes? Discuss. Question 7.      Thompson Co..

1. Question 5.
“Look how great we are doing,” said Sawyer Mittlestaedt,
president of Elliott Company. “Our sales have grown from $1.6
million to $2.0 million this year, we about doubled our
warehouse space, and we have more cash in the bank than we
started with. A few more years of growth like this and we’ll be
tops in the industry.”
“Yes, our statements look pretty good,” replied Endia Bush, the
company’s vice president for finance. “But I have concerns that
we’re doing business with a lot of companies we don’t know
much about. But I do agree, we’re certainly selling a lot of
merchandise; our inventory is actually down from last year.”
See statements on next page.
Elliott Company
Comparative Balance Sheets
At December 31, 2015 and 2014
2015
2014
Assets
Current assets:
Cash.
$42,000

2. $ 27,000
15000 incr
Marketable securities
19,000
13,000
Accounts receivable.
710,000
530,000
Inventory
848,000
860,000
Prepaid expenses
10,000
5,000
Total current assets
1,435,000
1,629,000
Long-term investments
60,000
110,000
Loans to subsidiaries
130,000
80,000
Plant and equipment
3,170,000
2,600,000
Less accumulated depreciation

3. 810,000
755,000
Net plant and equipment
2,360,000
1,845,000
Patents
84,000
90,000
Total assets
$4,263,000
$3,560,000
Liabilities and Stockholders’ Equity
Current liabilities
:
Accounts payable
$ 970,000
$ 670,000
Accrued liabilities
65,000
82,000

4. Total current liabilities
1,035,000
752,000
Long-term Bonds Payable
820,000
600,000
Notes payable
95,000
80,000
Total liabilities
1,950,000
1,432,000
Stockholders’ equity:
Common stock
1,740,000
1,650,000
Retained earnings .
573,000
478,000
Total stockholders’ equity
2,313,000
2,128,000
Total liabilities and stock
$4,263,000
3,560,000

5. Elliott’s income statement for 2015 follows
Sales
$2,000,000
Cost of goods sold
1,300,000
Gross profit
700,000
Selling and administrative expenses
490,000
Net operating income
210,000
Nonoperating items:
Gain on sale of investments
$60,000
Loss on sale of equipment.
20,000
40,000
Income before taxes
250,000
Income taxes
80,000
Net income

6. $ 170,000
The following additional information is available about Elliott’s
activities during 2015:
Cash dividends declared and paid to the common stockholders
totaled $75,000.
Long-term BONDS with a value of $380,000 were repaid during
the year.
Equipment was sold during the year for $70,000. The equipment
had cost $130,000 and had $40,000 in accumulated depreciation
on the date of sale.
Long-term investments were sold during the year for $110,000.
These investments had cost $50,000 when purchased several
years ago.
5-1. Ms. Bush asks you to prepare a statement of cash flow
(indirect method) for 2015.
5-2. What is Elliott’s free cash flow? Interpret your findings.
5-3. Is Elliott Corp. doing as well as its CEO believes? Discuss.
Question 7.
Thompson Co. had the following investment transactions
during the current year.
Feb. 6
Purchased 1,000 shares of Fernandez Finance Co. for $40 per
share plus brokerage costs of $225. Thompson intends to sell
these shares when the timing is right to make a gain.
Mar. 31
Purchased 15 $1,000 face, 8% bonds of Brown Corp. at 97½.
They mature in ten years, and interest is paid seminannually on

7. February 1 and August 1. Thompson has the intent and ability to
hold these until maturity. Thompson also determines that the
difference between effective interest rate amortization and
straight-line is immaterial.
June 20
Received a $2.20 per share dividend on Fernandez Finance Co.
shares.
August 1
Received interest check from Brown Corp.
Sept. 4
Acquired 4,000 shares of Jurgeson Conglomerate's stock for $30
per share plus $600 transaction costs. These shares were
classified as available-for-sale securities.
Dec. 31
Market values of Fernandez Finance Co. and Jurgeson
Conglomerate stock were $45 and $28 per share, respectively.
Brown Corp. bonds were trading at 99.
1-1. Prepare journal entries with appropriate supporting
computations for the year's transactions.
1-2. Show how each investment would be reported in
Thompson’s financial statements…