1) Handsome Hounds Grooming Company Income Statement For Year Ended MM/DD/YYYY Grooming Serive Revenue Expenses Operating

Expenses Amortization, patent Rent, Storage Building Net Income $150,000.00 $58,000.00 $10,000.00 $12,000.00

<-----$80,000-$10,000-$12,00 <-----$100,000/10 years = $10 $80,000.00 $70,000.00

2) Handsome Hounds Grooming Company Statement Of Cash Flows -Direct Method For Year Ended MM/DD/YYYY Cash Flows from Operating Activities Cash receipts From: Cash Sales Sales on Account Total Cash Receipts Cash Payements for: Operating Expenses Rent, Storage Buiding Security deposit Total Cash Payments Net Cash flows from operating activites Cash Flows from Investing Activities Cash outflows for: Down payment on patent Cash Flows from Financing Activities Cash Inflows from: Issuance of common stock Cash outflows for: Payment of Cash dividends Net Cash flows from financing activities Net increase in cash Cash Balance, Beginning of year

$ 110,000.00 <----$150,000 - $40,000 = $11 $ 30,000.00 <----$40,000 - $10,000 = $30,0 $ 140,000.00 $ (58,000.00) $ (12,000.00) $ (2,000.00) $ (72,000.00) $ 68,000.00

$ (20,000.00) <----$100,000 x 20% = $20,00

$ 50,000.00 $ (20,000.00) $ 30,000.00 $ 78,000.00 $ -

Cash Balance, End of Year Supplemental schedule of noncash investing and financing activities accquisition of patent in exchange for note payable 3)

$ 78,000.00

$ 80,000.00

The company made $2,000 less cash flow from operating activities. They had a net income of $70,000. Totaling a net of $68,000. The differnce comes from the addition of $10,000 of the amortization payments minus $10,000 that the customers owe minus $2,000 for the security deposit. 4) Handsome Hounds Grooming Company Balance Sheet For Year Ended MM/DD/YYYY Assets Current Assets Cash Accounts Receivable Security Deposit Total Current Assets Long-Term Assets Patent Total Long-Term Assets Total Assets Liabilities and Stockholders' Equity Long-Term Liabilities Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity

$ 78,000.00 $ 10,000.00 $ 2,000.00 $ 90,000.00 $ 90,000.00 $ 90,000.00 $ 180,000.00

$ 80,000.00 $ 80,000.00 $ 50,000.00 $ 50,000.00 $ 100,000.00 $ 180,000.00

--$80,000-$10,000-$12,000 = $58,000 --$100,000/10 years = $10,000

-$150,000 - $40,000 = $110,000 -$40,000 - $10,000 = $30,000

-$100,000 x 20% = $20,000

<----$100,000 - $10,000 = $90,000

<----$70,000 - $20,000 = $50,000

1) Both companies use the indirect method of reporting their cash flows from Operating Activities. We know this because the first line on the statement under Operating Activities is Net Earnings and then they are adjusting to reconcile to the amount of cash provided by operating activities. 2) Kellogs Net Cash: $1,143.3 Million in 2005, $1,410.5 Million in 2006. Increase of $267.2 Million. Largest adjustment to reconcile: Addition of $352.7 Million for depreciation and amortization. General Mills Net Cash: $1,711 Million in 2005, $1,771 Million in 2006. Increase of $60 Million. Largest adjustemtn to reconcile: Addition of $424 Million for depreciation and amortization. 3) Kellogg: Spent $374.2 Million in 2005, Spent $453.1 Million in 2006. General Mills: Spent $434 Million in 2005, Spent $360 Million in 2006. 4) Kellogg: Primary Source of Financing- Issuance of notes payable. Bought back own shares in 2006. General Mills: Primary Source of Financing - Payment of long-term debt. Bought back own shares in 2006. Some reasons for both companies buying back shares can be explained by what Porter and Norton state on page 520 of our texbook. "A corporation might repurcchase stock as treasury stock for several reasons. The most common reason is to have stock available to distribute to employees for bonuses or to make available as part of an employee benefit plan. Firms also mught buy treasury stock to maintain a favorable market price for the stock or to improve the apperance of the firm's financial ratio. More recently, firms have purchased their stock to maintain control of the ownership and to prevent unwanted takeover of buyout attemps. Of course, the lower the stock price, the more likely a company is to buy back its own stock and wait for the sames to rise in value before reissuing them."