Question

The Dec. 31, 2011, balance sheet of Tybee Corporation is provided below in millions
Assets
Cash $24
Account Receivable $15
Supplies $6
Prepaid insurance $12
Equipment $50
Less: Acc. Dep(12) $38
Land $10

Total: $105

Liabilities and Shareholders' Equity
Accounts Payable $4
Interest Payable $3
Unearned Revenue $12
Other Short- term payable $4
Long term note payable $50
Contributed CApital $20
Retained Earnings $12

Total $105

Transactions during January 2012:
-Paid $5 for employee wages
-Collected $10 cash from customers for work previously performed and billed
-Purchased equipment for $5 cash
-purchased $2 of supplies for cash
-paid $3 to a vendor fro previously purchased on credit in DEc. 2011
-paid the interest owed as of Dec. 31, 2011
-Completed $18 in services for customers, receiving 50% payment in cash and billing the remainder
-paid $15 to reduce outstanding long term note payable
-collected $5 for the issuance of common shares

As of 1/31/12
- Had performed 25% of the services for which it had been paid in advance
-owes $1 for interest that will be paid next month
-depreciated equipment in the amount of $4
Physical count of supplies reveals $3 on hand
-declared and paid a cash dividend in the amount of 50% of January's net income

REQUIRED:
Prepare a complete set of financial statements as of January 31, 2012 and prepare the statement of cash flows under the direct and indirect

Answer 1

Prepare the financial statements as follows

TC Inc
Income Statement
For the Month Ended January 31, 2012
Particulars	Amount (in millions)	Amount (in millions)
Service Revenue		$21
Operating Expenses
Employee Wages	$5
Supplies Expense	$5
Depreciation Expense	$4
Interest Expense	$1
Total Operating Expenses		$15
Net income		$6
TC Inc
Statement of Retained Earnings
For the Month Ended January 31, 2012
Particulars		Amount (in millions)
Beginning Balance		$12
Add: Net income		$6
Deduct: Dividends paid		($3)
Ending Balance		$15
TC Inc
Balance Sheet
January 31. 2012
Assets	Amount (in millions)	Amount (in millions)
Current Assets:
Cash	$12
Accounts Receivable	$14
Supplies	$3
Prepaid Insurance	$12
Total Current Assets		$41
Property, Plant and Equipment:
Land		$10
Equipment	$55
Deduct: Accumulated Depreciation	($16)	$39
Total Assets		$90
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable	$1
Interest Payable	$1
Unearned Revenue	$9
Other Short-term Payables	$4
Total Current Liabilities		$15
Non-current Liabilities:
Long term Notes Payable		$35
Total Liabilities		$50
Stockholders' Equity:
Contributed Capital	$25
Retained Earnings	$15
Total Stockholders' equity		$40
Total Liabilities and Stockholders' Equity		$90
TC Inc
Statement of Cash Flows (Indirect Method)
For the Month Ended January 31, 2012
Particulars	Amount (in millions)	Amount (in millions)
Cash flows from operating activities
Net income		$6
Depreciation Expense	$4
Add: Decrease in Accounts Receivable ($15 − $14)	$1
Add: Decrease in Supplies ($6 − $3)	$3
Deduct: Decrease in Accounts Payable ($4 − $1)	($3)
Deduct: Decrease in Interest Payable ($3 − $1)	($2)
Deduct: Decrease in Unearned Revenue ($12 − $9)	($3)	$0
Net cash inflows from operating activities		$6
Cash flows from investing activities
Purchase of Equipment	($5)
Net cash flow used in investing activities		($5)
Cash flows from financing activities
Long-term debt repaid	($15)
Common shares issued	$5
Dividends paid	($3)
Net cash inflows from financing activities		($13)
Decrease in cash		($12)
Add: beginning cash balance		$24
Ending cash balance		$12
TC Inc
Statement of Cash Flows (Direct Method)
For the Month Ended January 31, 2012
Particulars	Amount (in millions)	Amount (in millions)
Cash flows from operating activities
Cash receipts from Customers ($10 + $9)		$19
Cash Payments:
Employees	($5)
Suppliers ($3 + $2)	($5)
Interest	($3)	($13)
Net cash inflows from operating activities		$6
Cash flows from investing activities
Purchase of Equipment	($5)
Net cash flow used in investing activities		($5)
Cash flows from financing activities
Long-term debt repaid	($15)
Common shares issued	$5
Dividends paid	($3)
Net cash inflows from financing activities		($13)
Decrease in cash		($12)
Add: beginning cash balance		$24
Ending cash balance		$12

Notes: