Question: The income statement for the year ended
The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised.
![The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised.
Additional Information and Author Notes:
Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as “extra” depreciation recorded during the year due to abnormal decline in the asset value.]
Property, plant, and equipment: Includes land, buildings, aircraft equipment, Furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. [Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.]
Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.]
Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility.
Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017.
Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel.
Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady’s cash flows during 2017.](../images/the-income-statement-for-the-year-ended-december-31-2017-95052-1.jpg)
![The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised.
Additional Information and Author Notes:
Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as “extra” depreciation recorded during the year due to abnormal decline in the asset value.]
Property, plant, and equipment: Includes land, buildings, aircraft equipment, Furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. [Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.]
Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.]
Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility.
Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017.
Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel.
Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady’s cash flows during 2017.](../images/the-income-statement-for-the-year-ended-december-31-2017-95052-2.jpg)
![The income statement for the year ended December 31, 2017, as well as the balance sheets as of December 31, 2017, and December 31, 2016, for Lucky Lady Inc. follow. This information is taken from the financial statements of a real company whose name has been disguised.
Additional Information and Author Notes:
Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as “extra” depreciation recorded during the year due to abnormal decline in the asset value.]
Property, plant, and equipment: Includes land, buildings, aircraft equipment, Furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. [Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.]
Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.]
Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility.
Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017.
Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel.
Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady’s cash flows during 2017.](../images/the-income-statement-for-the-year-ended-december-31-2017-95052-3.jpg)
Additional Information and Author Notes:
Aircraft valuation adjustment: The company reduced the book value of its aircraft and related equipment to their expected recoverable values and recognized an aircraft carrying value adjustment in the 2017 income statement. [Author Note: You may treat this item as “extra†depreciation recorded during the year due to abnormal decline in the asset value.]
Property, plant, and equipment: Includes land, buildings, aircraft equipment, Furniture and fixture, equipment under capital lease, and so on. During 2017, the company acquired equipment under capital leases for $16,987,000. The company also sold equipment with a net book value of $2,501,000 for $684,000 cash. [Author Note: The gain or loss on this sale is combined with some other item in the income statement. Any other change in the gross book value of Property, plant, and equipment may be attributed to outright purchase of other equipment and building construction costs.]
Capital lease and long-term liabilities: [Author Note: When preparing the cash flow statement, you may find it convenient to combine the current and long-term portions of each of these liabilities.]
Pre-opening expenses: Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the Lucky Lady Hotel. Such expenses were expensed upon opening the facility.
Stock offering: The increases in Common stock and Capital in excess of par accounts are due to a common stock offering completed on August 17, 2017.
Laundry loan: On June 16, 2017, the company obtained a $10,000,000 loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 2017, $10,000,000 has been drawn down under the loan. Construction of the facility was completed in December 2017. The laundry provides the laundry and dry cleaning services for the Lucky Lady Hotel.
Using the indirect method, prepare the statement of cash flows for the year ended December 31, 2017, in as much detail as possible. For example, borrowing and repayment, if any, should be shown separately as financing inflow and outflow, respectively. Similarly, to the extent that information is available, separately disclose and explain the changes to each asset and each liability account that affected Lucky Lady’s cash flows during 2017.
Transcribed Image Text:
Income Statement For the Year Ended ($ in thousands) December 31, 2017 Revenues $ 26,702 2,897 2,351 Casino Rooms Food and beverage Other hoteVcasino Airline Total revenues 5,066 20,784 57,800 Operating Expenses Casino 9,341 Rooms Food and beverage Other hoteVcasino 1,016 2,529 5,777 Airline 20,599 Selling, general, and administrative (including bad debt expense of $3,855) Depreciation ex pense Hotel preopening expenses Aircraft carrying value adjustment Total operating expenses Operating income Nonoperating items: 19,679 8,018 45,130 68,948 181,037 (123,237) 12,231 (6,596) 16 (117,586) Interest income Interest expense Other, net Income before taxes Provision for income taxes Net income (loss) -0- $(117,586) Balance Sheets December 31, ($ in thousands) 2016 2017 Assets $ 211,305 35,249 (4,733) 11,755 12,662 266,238 953,796 (86,512) -0- $ 579,963 2,178 (1,531) 1,219 154 581,983 471,506 (21,796) 10,677 21,116 $1,063,486 Cash Gross accounts receivable Less: Allowance for doubtful accounts Prepaid expenses Inventories Total current assets Gross property, plant, and equipment Less: Accumulated depreciation Pre-opening ex penses Other operating assets Total assets 26,601 $1,160,123 Liabilities and Stockholders’ Equity Accounts payable Accrued salaries and wages Accrued interest on long-term debt Other accrued liabilities Construction payables Current maturities, capital leases Current maturities, long-term debt Total current liabilities $ 14,181 8,194 9,472 33,502 96,844 1,830 1,573 165,596 24 4,322 945 9,429 9,744 32,296 289 -0- 57,025 December 31, ($ in thousands) 2017 2016 Deferred revenues 10,784 6,517 14,044 481,427 -0- Deferred income taxes 6,517 Long-term obligation, capital leases Long-term debt Total liabilities 162 473,000 678,368 536,704 Common stock 506 485 Capital in excess of par value Common stock in treasury Retained earnings (deficit) Total stockholders' equity Total liabilities and equity 662,365 (29,490) 589,827 (29,490) (151,626) 481,755 $1,160,123 (34,040) 526,782 $1,063,486
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> For the year ended December 31, 2017, Tyre Company reported pre-tax financial statement income of $750,000. Its taxable income was $650,000. The difference was due to the use of accelerated depreciation for income tax purposes and straight-line for finan
> Mill Company began operations on January 1, 2017, and recognized income from construction- type contracts under different methods for tax purposes and financial reporting purposes. Information concerning income recognition under each method is as follows
> In its 2017 income statement, Tow Inc. reported proceeds from an officer’s life insurance policy of $90,000 and depreciation of $250,000. Tow was the owner and beneficiary of the life insurance on its officer. Tow deducted depreciation
> Collins Company incurs a $1,000 book expense that it deducts on its tax return. The tax law is unclear whether this expense is deductible, so the deduction leads to an uncertain tax position. Assuming a 35% tax rate, the deduction results in a $350 tax b
> Millie Co. completed its first year of operations on December 31, 2017, with pre-tax financial income of $400,000. Millie accrued a contingent liability of $900,000 for financial reporting purposes; however, the $900,000 will be paid and therefore is ded
> On December 31, 2017, Toms River Rafting, Inc. (TRR), has a deferred tax asset related to a $250,000 net operating loss carryforward. The enacted tax rate (and substantively enacted tax rate) at the time was 35%. When it recognized this deferred tax asse
> Granite Construction is one of the largest heavy civil construction contractors in the United States. Granite operates nationwide, serving both public and private sector clients. Within the public sector, the company primarily concentrates on infrastruct
> (Note: Students may want to review the material on the equity method of accounting in Chapter 16 before beginning work on this exercise.) Taft Corporation uses the equity method to account for its 25% investment in Flame, Inc., which it made on January 1
> Melissa Corporation is domiciled in Germany and is listed on both the Frankfurt and New York Stock Exchanges. Melissa has chosen to prepare consolidated financial statements in accordance with U.S. GAAP for filing with the U.S. Securities and Exchange Co
> As of December 31, 2017, Colt Corporation has a loss carryforward of $180,000 available to offset future taxable income. At December 31, 2017, the company believes that realization of the tax benefit related to the loss carryforward is probable. The tax
> Dix Company reported operating income/loss before income tax in its first three years of operations as follows: 2016 ………………. $ 100,000 2017 ………………. (200,000) 2018 ……………….400,000 Dix had no permanent or temporary differences between book income and taxabl
> (Note: Students may want to review the material on the equity method of accounting in Chapter 16 before beginning work on this exercise.) Tara Corporation uses the equity method of accounting for its 40% investment in Flax’s common stock. During 2017, Fl
> On January 2, 2016, Allen Company purchased a machine for $70,000. This machine has a five-year useful life, a residual value of $10,000, and it is depreciated using the straight-line method for financial statement purposes. For tax purposes, depreciatio
