CHAPTER 5
Balance Sheet=
and
Statement of Cash Flows
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 5-1
|
Current
assets |
|
|
|
=
Cash........................................=
............................. |
|
$27,000 |
|
=
Accounts
receivable........................=
................. |
$110,000 |
|
|
=
&nbs=
p;
Less: Allowance for doubtful accounts... |
(8,000) |
102,000 |
|
=
Inventor=
ies........................................=
.................. |
|
290,000 |
|
=
Prepaid
insurance.........................=
.................... |
|
9,500 |
|
&nbs=
p;
Total current assets.......=
....................... |
|
|
BRIEF EXERCISE 5-2
|
Current
assets |
|
|
|
=
Cash........................................=
............................. |
|
$ 7,000 |
|
=
Trading
securities........................=
..................... |
|
11,000 |
|
=
Accounts
receivable........................=
................. |
$90,000 |
|
|
=
&nbs=
p;
Less: Allowance for doubtful accounts... |
(4,000) |
86,000 |
|
=
Inventor=
y........................................=
..................... |
|
34,000 |
|
=
Prepaid
insurance.........................=
.................... |
|
5,200 |
|
&nbs=
p;
Total current assets.......=
....................... |
|
|
BRIEF EXERCISE 5-3
|
Long-term
investments |
|
|
|
<=
span
style=3D'font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:Helvetica;
mso-bidi-font-family:"Times New Roman"'>
Held-to-maturity securities=
.............................. |
|
$ 61,000 |
|
<=
span
style=3D'font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:Helvetica;
mso-bidi-font-family:"Times New Roman"'> Land hel=
d for
investment........................=
......... |
|
39,000 |
|
<=
span
style=3D'font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:Helvetica;
mso-bidi-font-family:"Times New Roman"'> Long-ter=
m note
receivables.......................=
..... |
|
42,000 |
|
&nbs=
p;
Total investments..........=
.............................. |
|
|
BRIEF EXERCISE 5-4
|
Property,
plant, and equipment |
|
|
|
=
Land........................................=
.............................. |
|
$ 61,000 |
|
=
Building=
s........................................=
..................... |
$207,000 |
|
|
=
&nbs=
p;
Less: Accumulated depreciation.............. |
(45,000) |
162,000 |
|
=
Equipmen=
t........................................=
................... |
$190,000 |
|
|
=
&nbs=
p;
Less: Accumulated depreciation............. |
(19,000) |
171,000 |
|
=
Timberla=
nd........................................=
.................. |
|
70,000 |
|
&nbs=
p;
Total property, plant, and equipment.. |
|
|
BRIEF EXERCISE 5-5
|
Intangible
assets |
|
|
|
=
Goodwill=
........................................=
....................... |
|
$150,000 |
|
=
Patents<=
span
style=3D'mso-tab-count:1 dotted'>........................................=
......................... |
|
220,000 |
|
=
Franchis=
es........................................=
.................. |
|
110,000 |
|
=
&nbs=
p;
Total intangibles..........=
................................ |
|
|
BRIEF EXERCISE 5-6
|
Intangible
assets |
|
|
|
=
Goodwill=
........................................=
....................... |
|
$40,000 |
|
=
Franchis=
es........................................=
.................. |
|
47,000 |
|
=
Patents<=
span
style=3D'mso-tab-count:1 dotted'>........................................=
......................... |
|
33,000 |
|
=
Trademar=
ks........................................=
................ |
|
10,000 |
|
=
&nbs=
p;
Total intangible assets....=
........................... |
|
|
BRIEF EXERCISE 5-7
|
Current
liabilities |
|
|
|
=
Accounts
payable...........................=
................... |
|
$72,000 |
|
=
Accrued
salaries..........................=
...................... |
|
4,000 |
|
=
Notes pa=
yable........................................=
............. |
|
12,500 |
|
=
Income t=
axes
payable...........................=
............ |
|
7,000 |
|
=
&nbs=
p;
Total current liabilities..=
........................ |
|
|
BRIEF EXERCISE 5-8
|
Current
liabilities |
|
|
|
=
Accounts=
payable........................................=
...... |
|
$240,000 |
|
=
Advances=
from
customers.........................=
..... |
|
41,000 |
|
=
Wages pa=
yable........................................=
........... |
|
27,000 |
|
=
Interest
payable...........................=
...................... |
|
12,000 |
|
=
Income t=
axes
payable...........................=
............ |
|
29,000 |
|
=
&nbs=
p;
Total current liabilities..=
........................ |
|
|
BRIEF EXERCISE 5-9
|
Long-term
liabilities |
|
|
|
=
Bonds pa=
yable........................................=
........... |
$400,000 |
|
|
=
&nbs=
p;
Less: Discount on bonds payable........... |
24,000 |
$376,000 |
|
=
Pension
liability.........................=
......................... |
|
375,000 |
|
=
&nbs=
p;
Total long-term liabilities=
...................... |
|
|
BRIEF EXERCISE 5-10
|
Stockholders’
equity |
|
|
|
=
Common s=
tock........................................=
........... |
|
|
|
=
Addition=
al
paid-in capital...................=
............... |
|
|
|
=
Retained
earnings..........................=
................... |
|
|
|
=
Accumula=
ted
other comprehensive loss..... |
|
(150,000) |
|
=
&nbs=
p;
Total stockholders’ equity.......................... |
|
$870,000 |
BRIEF EXERCISE 5-11
|
Stockholders’
equity |
|
|
|
=
Preferred
stock.............................=
..................... |
|
|
|
=
Common s=
tock........................................=
........... |
|
|
|
=
Addition=
al
paid-in capital...................=
............... |
|
|
|
=
Retained
earnings..........................=
................... |
|
|
|
=
&nbs=
p;
Total stockholders’ equity.......................... |
|
$515,000 |
BRIEF EXERCISE 5-12
|
|
||
|
|
|
|
|
Oper=
ating
Activities |
|
|
|
=
Net inco=
me........................................=
.................. |
|
|
|
=
Increase=
in
accounts receivable...............=
..... |
|
(10,000) |
|
=
Increase=
in
accounts payable..................=
....... |
|
|
|
=
Deprecia=
tion
expense...........................=
............ |
|
|
|
=
&nbs=
p;
Net cash provided by operating
activities........................=
............................................. |
|
39,000 |
BRIEF EXERCISE 5-12 (Continued)
|
=
Investing Activities |
|
|
|
=
Purchase=
of
equipment.........................=
........... |
|
(8,000) |
|
=
|
|
|
|
=
Financing Activities |
|
|
|
=
Issue no=
tes
payable...........................=
............... |
|
20,000 |
|
=
Dividend=
s........................................=
.................... |
|
(5,000) |
|
=
&nbs=
p;
Net cash flow from financing activities... |
|
15,000 |
|
=
Net change in
cash ($39,000 – $8,000 + $15,000)......................................................................=
|
|
|
Free Cash Flow =3D $39,000 (Net cash provided by operating activities) – $= 8,000 (Purchase of equipment) – $5,000 (Dividends) =3D $26,000.
BRIEF EXERCISE 5-13
|
Cash
flows from operating activities |
|
|
|
=
Net inco=
me........................................=
.................. |
|
$151,000 |
|
=
Adjustme=
nts to
reconcile net income to |
|
|
|
=
&nbs=
p;
Depreciation expense.......=
.......................... |
$39,000 |
|
|
=
&nbs=
p;
Increase in accounts payable................... |
9,500 |
|
|
=
&nbs=
p;
Increase in accounts receivable.............. |
(13,000) |
35,500 |
|
=
Net cash
provided by operating activities..=
.. |
|
|
BRIEF EXERCISE 5-14
|
|
|
$181,000 |
|
=
Purchase of land........................................=
.............. |
|
(37,000) |
|
=
Purchase of equipment........................................=
.. |
|
(53,000) |
|
=
Net cash
provided by investing activities..=
.. |
|
$ 91,000 |
BRIEF EXERCISE 5-15
|
=
Issuance of common stock................................... |
|
$147,000 |
|
=
Purchase of treasury stock................................... |
|
(40,000) |
|
=
Payment of cash dividend..................................... |
|
(85,000) |
|
=
Retirement of bonds........................................=
........ |
|
(100,000) |
|
=
Net cash=
used
by financing activities...........=
. |
|
|
BRIEF EXERCISE 5-16
|
|
||
|
|
|
|
|
=
Net cash provided by operating
activities.......... |
|
$400,000 |
|
=
Less: Purchase of equipment............................. |
|
(53,000) |
|
=
&nbs=
p;
Purchase of land*..........=
............................. |
|
(37,000) |
|
=
&nbs=
p;
Dividends..................=
................................... |
|
(85,000) |
|
=
Free cash flow.......................................................... |
|
|
*If the land were purchased as an investment, it would be excluded= in the computation of free cash flow.
SOLUTI=
ONS
TO EXERCISES
EXERCISE 5-1 (15–20 minutes)<= o:p>
(a) If the
investment in preferred stock is readily marketable and held primarily for =
sale
in the near term to generate income on short-term price differences, then t=
he
account should appear as a current asset and be included with trading
securities. If, on the other hand, the preferred stock is not a trading
security, it should be classified as available for sale. Available for sale
securities are classified as current or noncurrent depending upon the
circumstances.
(b) If the
company accounts for the treasury stock on the cost basis, the account shou=
ld
properly be shown as a reduction of total stockholders’ equity.
(c) Stockh=
olders’
equity.
(d) Current
liability.
(e) Proper=
ty,
plant, and equipment (as a deduction).
(f) =
If the
warehouse in process of construction is being constructed for another party=
, it
is properly classified as an inventory account in the current asset section.
This account will be shown net of any billings on the contract. On the other
hand, if the warehouse is being constructed for the use of this particular
company, it should be classified as a separate item in the property, plant,=
and
equipment section.
(g) Curren=
t asset.
(h) Current
liability.
(i) =
Retained earnings.
EXERCISE 5-1 (Continued)
(j) =
Current asset.
(k)&=
nbsp;
Current liability.
(l)&=
nbsp;
Current liability.
(m)&=
nbsp; Current
asset (inventory).
(n)&=
nbsp;
Current liability.
EXERCISE 5-2 (15–20 minutes)
|
=
1. |
h. |
11. |
b. |
|
=
2. |
d. |
12. |
f. |
|
=
3. |
f. |
13. |
a. |
|
=
4. |
f. |
14. |
h. |
|
=
5 |
c. |
15. |
c. |
|
=
6. |
a. |
16. |
b. |
|
=
7. |
f. |
17. |
a. |
|
=
8. |
g. |
18. |
a. |
|
=
9. |
a. |
19. |
g. |
|
10. |
a. |
20. |
f. |
EXERCISE 5-3 (15–20 minutes)
|
=
1. |
a. |
10. |
f. |
|
=
2. |
b. |
11. |
a. |
|
=
3. |
f. |
12. |
f. |
|
=
4. |
a. |
13. |
a. or e. (preferably a.) |
|
=
5 |
f. |
14. |
c. and N. |
|
=
6. |
h. |
15. |
f. |
|
=
7. |
i. |
16. |
X. |
|
=
8. |
d. |
17. |
f. |
|
=
9. |
a. |
18. |
c. |
|
|
|
|
|
EXERCISE 5-4 (30–35 minutes)<= o:p>
|
Denis Savard Inc. |
|
|||
|
Balance Sheet |
|
|||
|
Dece=
mber
31, 20– |
|
|||
|
Assets |
||||
|
=
Current assets |
|
|
|
|
|
Cash........................................=
.................... |
$XXX=
|
|
|
|
|
&nbs=
p;
Less: Cash restricted for plant |
|
|
|
|
|
Accounts
receivable........................=
....... |
XXX<= o:p> |
|
|
|
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|
|
Notes
receivable........................=
.............. |
|
XXX<= o:p> |
|
|
|
Receivables—officers.=
............................ |
|
XXX<= o:p> |
|
|
|
Inventor=
ies |
|
|
|
|
|
&nbs=
p;
Finished goods.............=
..................... |
XXX<= o:p> |
|
|
|
|
&nbs=
p;
Work in process............=
..................... |
XXX<= o:p> |
|
|
|
|
&nbs=
p;
Raw materials..............=
....................... |
XXX |
XXX |
|
|
|
&nbs=
p;
Total current assets.......=
............. |
|
|
$XXX=
|
|
|
|
|
|
|
|
|
Long-term
investments |
|
|
|
|
|
Preferred
stock investments.................=
|
|
XXX<= o:p> |
|
|
|
Land hel=
d for
future plant site............... <=
/span> |
|
XXX<= o:p> |
|
|
|
Cash restricted for p=
lant
expansion.... |
|
XXX |
|
|
|
&nbs=
p;
Total long-term investments=
..... |
|
|
XXX<= o:p> |
|
|
|
|
|
|
|
|
Property,
plant, and equipment |
|
|
|
|
|
Building=
s........................................=
............ |
|
XXX<= o:p> |
|
|
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
Copyrigh=
ts........................................=
......... |
|
|
XXX |
|
|
&nbs=
p;
Total assets...............=
......................... |
|
|
$XXX |
|
EXERCISE 5-4 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
||||
|
=
Current liabilities |
|
|
|
|
|
Accrued
salaries payable..................=
......... |
|
$XXX=
|
|
|
|
Notes pa=
yable,
short-term........................=
.. |
|
XXX<= o:p> |
|
|
|
Unearned subscriptions reve=
nue............. |
|
XXX<= o:p> |
|
|
|
Unearned=
rent
revenue...........................=
.... |
|
XXX |
|
|
|
&nbs=
p;
Total current liabilities..=
......................... |
|
|
|
$XXX=
|
|
|
|
|
|
|
|
Long-term d=
ebt |
|
|
|
|
|
Bonds pa=
yable,
due in four years............. |
|
|
$XXX=
|
|
|
Less: Di=
scount
on bonds payable............ |
|
|
(XXX) |
XXX |
|
&nbs=
p;
Total liabilities..........=
............................... |
|
|
|
XXX<= o:p> |
|
|
|
|
|
|
|
Stockholder=
s’
equity |
|
|
|
|
|
Capital =
stock: |
|
|
|
|
|
&nbs=
p;
Common stock...............=
......................... |
|
XXX<= o:p> |
|
|
|
Addition=
al
paid-in capital: |
|
|
|
|
|
&nbs=
p;
Premium on common stock....=
............. |
|
XXX |
|
|
|
&nbs=
p;
Total paid-in capital......=
.................... |
|
|
XXX<= o:p> |
|
|
Retained
earnings..........................=
.............. |
|
|
XXX |
|
|
&nbs=
p;
Total paid-in capital and |
|
|
|
|
|
&nbs=
p;
Less: Treasury stock=
, at
cost............. |
|
|
(XXX) |
|
|
&nbs=
p;
Total stockholders’ equity.............. |
|
|
|
XXX |
|
&nbs=
p; Total
liabilities and stock- |
|
|
|
|
EXERCISE 5-5 (30–35 minutes)<= o:p>
|
Uhura Company |
|||
|
Balance Sheet |
|||
|
Dece=
mber
31, 2007 |
|||
|
Assets |
|||
|
Current ass=
ets |
|
|
|
|
Cash........................................=
............... |
|
$230=
,000 |
|
|
Trading
securities—at fair value....=
. |
|
120,=
000 |
|
|
Accounts
receivable........................=
... |
$357=
,000 |
|
|
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|
Inventor=
ies,
at lower of average |
|
|
|
|
Prepaid
expenses..........................=
..... |
|
=
12,000 |
|
|
&nbs=
p;
Total current assets.......=
.............. |
|
|
$1,1=
03,000 |
|
|
|
|
|
|
Long-term
investments |
|
|
|
|
Land hel=
d for
future use.................... |
|
175,=
000 |
|
|
Cash sur=
render
value of life |
|
|
|
|
|
|
|
|
|
Property,
plant, and equipment |
|
|
|
|
Building=
........................................=
......... |
$730=
,000 |
|
|
|
&nbs=
p;
Less: Accum. depr.—building.... |
160,000 |
570,=
000 |
|
|
Office
equipment.........................=
........ |
265,=
000 |
|
|
|
&nbs=
p;
Less: Accum. depr.—office |
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
Goodwill=
........................................=
........ |
|
|
80=
,000 |
|
&nbs=
p;
Total assets...............=
.................... |
|
|
$2,178,000<= o:p> |
EXERCISE 5-5 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|||||
|
Current
liabilities |
|
|
|
||
|
Accounts
payable...........................=
...... |
|
$ |
|
||
|
Notes pa=
yable
(due next year)........... =
|
|
125,=
000 |
|
||
|
Rent payable |
|
49,000 |
|
||
|
&nbs=
p;
Total current liabilities..=
................. |
|
|
$309=
,000 |
||
|
|
|
|
|
||
|
Long-term
liabilities |
|
|
|
||
|
Bonds pa=
yable...................................... <=
/span> |
$500=
,000 |
|
|
||
|
Add: Pre=
mium
on bonds payable..... |
53,000 |
$553=
,000 |
|
||
|
Pension
obligation........................=
....... |
|
82,000 |
635,000 |
||
|
&nbs=
p;
Total liabilities..........=
....................... |
|
|
944,=
000 |
||
|
|
|
|
|
||
|
Stockholder=
s’
equity |
|
|
|
||
|
Common s=
tock,
$1 par, authorized |
|
|
|
||
|
Addition=
al
paid-in capital...................=
. |
160,000 |
450,=
000 |
|
||
|
Retained=
earnings................................ =
|
|
784,000*=
|
|
||
|
&nbs=
p;
Total stockholders’ equity............ |
|
|
1,234,000 |
||
|
&nbs=
p;
Total liabilities and stock- |
|
|
|
||
*$2,178,000 – $944,000 –
$450,000
EXERCISE 5-6 (30–35 minutes)<= o:p>
|
Geronimo Company |
|||
|
Balance Sheet |
|||
|
July=
31,
2007 |
|||
|
Assets |
|||
|
Current ass=
ets |
|
|
|
|
Cash........................................=
............... |
|
$60,000* |
|
|
Accounts
receivable........................=
... |
|
|
|
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|
Inventor=
ies........................................=
.... |
|
65,300***<=
u> |
|
|
&nbs=
p;
Total current assets.......=
.............. |
|
|
$168,500 |
|
|
|
|
|
|
Long-term
investments |
|
|
|
|
Bond sin=
king
fund..............................=
|
|
|
15,0=
00 |
|
|
|
|
|
|
Property,
plant, and equipment |
|
|
|
|
Equipmen=
t........................................=
.... |
|
112,=
000 |
|
|
&nbs=
p;
Less: Accumulated depreciation— |
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
Patents<=
span
style=3D'mso-tab-count:1 dotted'>........................................=
.......... |
|
|
21,000 |
|
&nbs=
p;
Total assets...............=
.................... |
|
|
$288,500 |
|
* |
($69,000 – $15,000 + $6,000=
) |
|
** |
($52,000 – $5,300) |
|
***<= o:p> |
($60,000 + $5,300) |
EXERCISE 5-6 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|||
|
Current liabilities |
|
|
|
|
Notes and
accounts payable..................=
..... |
|
$ |
|
|
Taxes pa=
yable........................................=
........ |
|
6,000 |
|
|
&nbs=
p;
Total current liabilities..=
.......................... |
|
|
58,0=
00 |
|
|
|
|
|
|
Long-term
liabilities............................................. |
|
|
75,000 |
|
&nbs=
p;
Total liabilities..........=
................................. |
|
|
133,=
000 |
|
|
|
|
|
|
Stockholder=
s’
equity........................................... |
|
|
155,500 |
|
&nbs=
p;
Total liabilities and stock- |
|
|
|
|
**** |
($44,000 + $8,000) |
EXERCISE 5-7 (15–20 minutes)<= o:p>
|
Current assets |
|
|
|
|
|
Cash........................................=
............................ |
|
$ |
|
|
|
Less: Ca=
sh
restricted for plant expansion. |
|
(50,000) |
$ |
|
|
Trading
securities at fair value (cost, |
|
|
|
|
|
Accounts
receivable (of which $50,000 is |
|
|
|
|
|
Less:
Allowance for doubtful accounts...=
.... |
|
(12,000) |
149,=
000 |
|
|
Interest
receivable [($40,000 X 6%) X 8/12]=
. |
|
|
1,60=
0 |
|
|
Inventor=
ies at
lower of cost (determined |
|
|
|
|
|
&nbs=
p;
Finished goods.............=
.............................. |
|
52,0=
00 |
|
|
|
&nbs=
p;
Work-in-process............=
............................. |
|
34,0=
00 |
|
|
|
&nbs=
p;
Raw materials..............=
................................ |
|
207,000 |
293,000 |
|
|
&nbs=
p;
Total current assets.......=
...................... |
|
|
$509,600 |
|
*An
acceptable alternative is to report cash at $37,000 and simply report the c=
ash
restricted for plant expansion in the investments section.
EXERCISE 5-8 (10–15 minutes)<= o:p>
1. Dividends p=
ayable
of $2,375,000 will be reported as a current liability [(1,000,000 –
50,000) X $2.50].
2. Bonds payab=
le of
$25,000,000 and interest payable of $3,000,000 ($100,000,000 X 12% X 3/12) =
will
be reported as a current liability. Bonds payable of $75,000,000 will be
reported as a long-term liability.
3. Customer ad=
vances
of $17,000,000 will be reported as a current liability ($12,000,000 +
$30,000,000 – $25,000,000).
EXERCI=
SE
5-9 (30–35 minutes)
|
(a) &=
nbsp; &nbs=
p; Alles=
sandro
Scarlatti Company |
||||||||
|
Balance Sheet (Partial)=
|
||||||||
|
Dece=
mber
31, 2007 |
||||||||
|
=
Current assets |
|
|
|
|||||
|
Cash........................................=
................ |
|
|
$ |
|||||
|
Accounts
receivable........................=
.... |
|
$ 91,300** |
|
|||||
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|||||
|
Inventor=
ies........................................=
..... |
|
|
159,000*** |
|||||
|
Prepaid
expenses..........................=
...... |
|
|
9,000 |
|||||
|
&nbs=
p;
Total current assets.......=
............... |
|
|
$286,696 |
|||||
|
|
|
|
|
|||||
|
* |
|
|
$ |
||||||
|
|
|
|
|
||||||
|
|
|
|
78,2=
20 |
||||||
|
|
Less: Cash sales in January ($30,000 &=
#8211;
$21,500) |
|
(8,5=
00) |
||||||
|
|
|
|
(23,=
324) |
||||||
|
|
&nbs=
p;
Bank loan proceeds ($35,324 – $23,324) |
|
(12,000) |
||||||
|
|
Adjusted cash |
|
$ 34,396 |
||||||
|
|
|
|
|
||||||
|
** |
|
|
$ |
||||||
|
|
Add: Accounts reduced from Janu=
ary
collection |
|
|
||||||
|
|
|
|
112,=
800 |
||||||
|
|
|
|
(21,500) |
||||||
|
|
Adjusted accounts receivable |
|
$ 91,300 |
||||||
|
|
|
|
|
||||||
|
*** |
|
|
$171=
,000 |
||||||
|
|
|
|
12,000 |
||||||
|
|
Adjusted inventory |
|
$159,000 |
||||||
EXERCI=
SE
5-9 (Continued)
|
Current liabilities |
|
|
|
|
Accounts
payable...........................=
.............. |
|
|
$115=
,000a |
|
Notes pa=
yable........................................=
........ |
|
|
55,000b |
|
&nbs=
p;
Total current liabilities..=
......................... |
|
|
$170,000 |
|
a |
|
|
$61,=
000 |
|
|
|
$39,=
000 |
|
|
|
|
|
|
|
|
Adjusted accounts payable |
|
$115,000 |
|
|
|
|
|
|
b |
|
|
$ |
|
|
|
|
12,000 |
|
|
Adjusted notes payable |
|
$ 55,000 |
|
|
|
|
|
|
|
Add: January sales discounts |
|
|
|
|
Deduct: January sales..................................... |
$30,=
000 |
|
|
|
&nbs=
p;
January purchase discounts |
|
|
|
|
&nbs=
p;
December purchases.........=
............... |
15,0=
00 |
|
|
|
&nbs=
p;
Consignment inventory......=
............... |
12,000 |
(57,780)=
|
|
|
Change (decrease) to
retained earnings....... |
|
$(57,304)=
|
|
|
|
|
|
EXERCI=
SE
5-10 (15–20 minutes)
(a) =
In order for a liability to be repo=
rted
for threatened litigation, the amount must be probable and payment reasonab=
ly
estimable. Since these conditions are not met an accrual is not required.
(b) =
A current liability of $150,000 sho=
uld
be recorded.
(c) =
A current liability for accrued
interest of $4,000 ($600,000 X 8% X 1/2) should
be reported. Also, the $600,000 note payable should be a current lia=
bility
if payable in one year. Otherwise, the $600,000 note payable would be a
long-term liability.
(d) =
Although bad debts expense of $300,=
000
should be debited and the allowance for doubtful accounts credited for
$300,000, this does not result in a liability. The allowance for doubtful
accounts is a valuation account (contra asset) and is deducted from accounts
receivable on the balance sheet.
(e) =
A current
liability of $80,000 should be reported. The liability is recorded <=
/b>on the
date of declaration.
(f) =
Customer advances of $110,000 ($160=
,000
– $50,000) will be reported as a current liability.
EXERCISE 5-11 (25–30 minutes)=
|
Kelly Corporation |
||||
|
Balance Sheet |
||||
|
Dece=
mber
31, 2007 |
||||
|
Assets |
||||
|
Current assets |
|
|
|
|
|
Cash........................................=
............................. |
|
$ |
|
|
|
Office
supplies..........................=
......................... |
|
1,20=
0 |
|
|
|
Prepaid
insurance.........................=
.................... |
|
1,000 |
|
|
|
&nbs=
p;
Total current assets.......=
............................ |
|
|
$ 9,050 |
|
|
Equipment........................................=
......................... |
|
48,0=
00 |
|
|
|
Less: Accumulated
depreciation......................=
... |
|
4,000 |
44,0=
00 |
|
|
Intangible assets—= ;trademark............................... <= o:p> |
|
|
&nb=
sp;
950 |
|
|
&nbs=
p;
Total assets...............=
.................................. |
|
|
$54,000 |
|
|
Liabilities=
and
Stockholders’ Equity |
||||
|
Current liabilities |
|
|
|
|
|
Accounts
payable...........................=
................... |
|
$10,000 |
|
|
|
Wages pa=
yable........................................=
........... |
|
500 |
|
|
|
Unearned
service revenue...................=
........... |
|
2,000 |
|
|
|
&nbs=
p;
Total current liabilities..=
............................ |
|
|
$12,500 |
|
|
Long-term liabilities |
|
|
|
|
|
Bonds pa=
yable........................................=
........... |
|
|
9,000 |
|
|
Total
liabilities.......................=
............................. |
|
|
21,500 |
|
|
Stockholders’ equ=
ity |
|
|
|
|
|
Common s=
tock........................................=
........... |
|
|
10,0=
00 |
|
|
Retained
earnings ($25,000 – $2,500*)=
.......... |
|
|
22,500 |
|
|
&nbs=
p;
Total stockholders’ equity......................... |
|
|
32,500 |
|
|
&nbs=
p;
Total liabilities and
stockholders’ equity =
|
|
|
$54,000 |
|
*[$10,000 – ($9,000 + $1,400 +
$1,200 + $900)]
EXERCISE 5-12 (30–35 minutes)=
|
John Nalezny Corporatio=
n |
|||||
|
Balance Sheet |
|||||
|
Dece=
mber
31, 2007 |
|||||
|
Assets |
|||||
|
Current assets |
|
|
|
||
|
Cash........................................=
.............. |
|
$197=
,000 |
|
||
|
Trading
securities........................=
..... |
|
153,=
000 |
|
||
|
Accounts
receivable........................=
. |
$435=
,000 |
|
|
||
|
&nbs=
p;
Less: Allowance for doubtful &nbs=
p;
accounts...................=
................ |
(25,000) |
410,=
000 |
|
||
|
Inventor=
ies........................................=
.. |
|
597,000 |
|
||
|
&nbs=
p;
Total current assets.......=
............ |
|
|
1,357,000 |
||
|
|
|
|
|
||
|
Long-term
investments |
|
|
|
||
|
Investme=
nts in
bonds....................... |
|
299,=
000 |
|
||
|
Investme=
nts in
stocks....................... |
|
277,000 |
|
||
|
&nbs=
p;
Total long-term investments=
... |
|
|
576,=
000 |
||
|
|
|
|
|
||
|
Property, plant, and equipment |
|
|
|
||
|
Land........................................=
.............. |
|
260,=
000 |
|
||
|
Building=
s........................................=
...... |
1,040,000 |
|
|
||
|
&nbs=
p;
Less: Accum. depreciation..=
...... |
(152,000) |
888,=
000 |
|
||
|
Equipment..................=
........................ |
600,=
000 |
|
|
||
|
&nbs=
p;
Less: Accum. depreciation..=
...... |
(60,000) |
540,000 |
|
||
|
&nbs=
p;
Total property, plant, and &nbs=
p;
equipment..................=
................ |
|
|
1,688,000 |
||
|
|
|
|
|
||
|
Intangible
assets |
|
|
|
||
|
Franchise............................................................ <= o:p> |
|
160,=
000 |
|
||
|
Patent |
|
195,000 |
|
||
|
&nbs=
p;
Total intangible assets....=
........... |
|
|
355,000 |
||
|
&nbs=
p;
Total assets...............=
................... |
|
|
$3,976,000<= o:p> |
||
EXERCISE 5-12 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
||||
|
=
Current liabilities |
|
|
|
|
|
Accounts
payable...........................=
|
|
$ |
|
|
|
Short-te=
rm
notes payable............. =
|
|
90,0=
00 |
|
|
|
Dividends
payable.......................... =
|
|
136,=
000 |
|
|
|
Accrued
liabilities.......................=
.... |
|
96,000 |
|
|
|
&nbs=
p;
Total current liabilities..=
......... |
|
|
$
777,000 |
|
|
|
|
|
|
|
|
Long-term d=
ebt |
|
|
|
|
|
Long-term
notes payable.............. |
|
900,=
000 |
|
|
|
Bonds pa=
yable................................. |
|
1,000,000 |
|
|
|
&nbs=
p;
Total long-term liabilities=
......... |
|
|
1,900,000 |
|
|
&nbs=
p;
Total liabilities..........=
................... |
|
|
2,677,000 |
|
|
|
|
|
|
|
|
Stockholder=
’s
equity |
|
|
|
|
|
Paid-in
capital |
|
|
|
|
|
&nbs=
p;
Common stock ($5 par)......=
..... |
$1,0=
00,000 |
|
|
|
|
&nbs=
p;
Additional paid-in capital.=
....... |
80=
,000 |
1,08=
0,000 |
|
|
|
Retained
earnings*.........................=
. |
|
410,000 |
|
|
|
=
&nbs=
p;
Total paid-in capital and &nbs=
p;
retained earnings..........=
........ |
|
1,49=
0,000 |
|
|
|
Less: Tr=
easury
stock...................... |
|
(191,000)=
|
|
|
|
&nbs=
p;
Total stockholders’ equity..... |
|
|
1,299,000 |
|
|
&nbs=
p;
Total liabilities and |
|
|
$3,976,000<= o:p> |
|
EXERCISE 5-12 (Continued)=
|
|
|
|
|
|
|
$8,1=
00,000 |
|
|
|
63,0=
00 |
|
|
|
80,0=
00 |
|
|
|
(4,800,000) |
|
|
|
(2,000,000) |
|
|
|
(900,000) |
|
|
|
(211,000<=
/b>)=
|
|
|
|
$ 332,000 |
|
|
|
|
|
|
|
$ |
|
|
|
332,000 |
|
|
|
$410,000 |
Or ending retained earnings can be
computed as follows:
|
|
|
$1,2=
99,000 |
|
|
|
191,=
000 |
|
|
|
1,080,000 |
|
|
|
$ 410,000 |
Note to instructor: The=
re
is no dividends account. Thus, the 12/31/07 retained earnin=
gs
balance already reflects any dividends declared.
EXERCISE 5-13 (15–20 minutes)=
|
(a) |
4. |
(f) |
1. |
(k) |
1. |
|
(b) |
3. |
(g) |
5. |
(l) |
2. |
|
(c) |
4. |
(h) |
4. |
(m) |
2. |
|
(d) |
3. |
(i) |
5. |
|
|
|
(e) |
1. |
(j) |
4. |
|
|
EXERCISE 5-14 (25–35
minutes)
|
|
||
|
|
||
|
For the Year Ended Dece=
mber
31, 2007 |
||
|
Cash flows from operating activit=
ies |
|
|
|
=
Net inco=
me........................................=
.................. |
|
$44,000 |
|
=
Adjustme=
nts to
reconcile net income |
|
|
|
=
&nbs=
p;
to net cash provided by operating |
|
|
|
=
&nbs=
p;
activities: |
|
|
|
=
&nbs=
p;
Depreciation expense.......=
......................... |
$ 6,000 |
|
|
=
&nbs=
p;
Increase in accounts receivable.............. |
(3,000) |
|
|
=
&nbs=
p;
Increase in accounts payable................... |
5,000 |
8,000 |
|
=
Net cash
provided by operating activities..=
. |
|
52,000 |
|
=
Cash flows from investing activit=
ies |
|
|
|
=
Purchase=
of
equipment.........................=
........... |
|
(17,000) |
|
=
Cash flows from financing activit=
ies |
|
|
|
=
Issuance=
of
common stock......................=
....... |
20,000 |
|
|
=
Payment =
of
cash dividends....................=
......... |
(23,000) |
|
|
=
Net cash=
used
by financing activities...........=
|
|
(3,000) |
|
=
Net increase in cash........................................=
....... |
|
32,000 |
|
=
Cash at beginning of year..................................... |
|
13,000 |
|
Cash at end of year........................................=
......... |
|
|
EXERCISE 5-15 (25–35
minutes)
|
(a) &=
nbsp; &nbs=
p; =
Zubin
Mehta Corporation |
|||
|
|
|||
|
For the Year Ended Dece=
mber
31, 2007 |
|||
|
Cash flows from operating activit=
ies |
|
|
|
|
=
Net inco=
me........................................=
.................. |
|
$160,000 |
|
|
=
Adjustme=
nts to
reconcile net income |
|
|
|
|
=
&nbs=
p;
to net cash provided by operating |
|
|
|
|
=
&nbs=
p;
activities: |
|
|
|
|
=
&nbs=
p;
Depreciation expense.......=
......................... |
$17,000 |
|
|
|
=
&nbs=
p;
Loss on sale of investments=
..................... |
10,000 |
|
|
|
=
&nbs=
p;
Decrease in accounts receivable............ |
5,000 |
|
|
|
=
&nbs=
p;
Decrease in current liabilities................... |
(17,000) |
15,000 |
|
|
=
Net cash
provided by operating activities..=
. |
|
175,000 |
|
|
=
Cash flows from investing activit=
ies |
|
|
|
|
=
|
|
|
|
|
=
&nbs=
p;
[($74,000 – $52,000) – $10,000] |
|
|
|
|
=
Purchase=
of
equipment.........................=
........... |
(58,000) |
|
|
|
Net cash=
used
by investing activities...........=
. |
|
|
|
|
=
Cash flows from financing activit=
ies |
|
|
|
|
=
Payment =
of
cash dividends....................=
......... |
|
(30,000)=
|
|
|
=
Net increase in cash........................................=
....... |
|
99,000 |
|
|
=
Cash at beginning of year..................................... |
|
78,000 |
|
|
Cash at end of year........................................=
......... |
|
|
|
(b) &=
nbsp; &nbs=
p; &=
nbsp; Free
Cash Flow Analysis |
||
|
Net cash provided by operating
activities......... |
|
$175,000 |
|
=
Less: Purchase of equipment............................. |
|
(58,000) |
|
=
&nbs=
p;
Dividends..................=
..................................... |
|
(30,000) |
|
=
Free cash flow.......................................................... |
|
|
EXERCI=
SE
5-16 (20–25 minutes)
|
(a) &=
nbsp; &nbs=
p; &=
nbsp; Shabbona
Corporation |
|||
|
|
|||
|
For the Year Ended Dece=
mber
31, 2007 |
|||
|
Cash flows from operating activit=
ies |
|
|
|
|
=
Net inco=
me........................................=
................... |
|
$125,000 |
|
|
=
Adjustme=
nts to
reconcile net income |
|
|
|
|
=
&nbs=
p;
to net cash provided by operating |
|
|
|
|
=
&nbs=
p;
activities: |
|
|
|
|
=
&nbs=
p;
Depreciation expense.......=
........................... |
$27,000 |
|
|
|
=
&nbs=
p;
Increase in accounts receivable............... |
(16,000) |
|
|
|
=
&nbs=
p;
Decrease in inventory......=
........................... |
9,000 |
|
|
|
=
&nbs=
p;
Decrease in accounts payable.................. |
(13,000) |
7,000 |
|
|
=
Net cash
provided by operating activities..=
... |
|
132,000 |
|
|
=
Cash flows from investing activit=
ies |
|
|
|
|
=
|
39,000 |
|
|
|
=
Purchase=
of
equipment.........................=
............ |
(60,000) |
|
|
|
=
Net cash=
used
by investing activities...........=
.. |
|
(21,000) |
|
|
=
Cash flows from financing activit=
ies |
|
|
|
|
=
Payment =
of
cash dividends....................=
.......... |
|
(60,000)=
|
|
|
=
Net increase in cash........................................=
......... |
|
|
|
|
=
Cash at beginning of year....................................... =
|
|
|
|
|
Cash at end of year........................................=
.......... |
|
$ 73,000 |
Noncash investing and financing
activities
Issued com=
mon
stock to retire $50,000 of bonds outstanding
EXERCISE 5-16 (Continued)=
(b) Current cash debt coverage ratio = =3D
|
=3D |
Net cash provided by
operating activities |
|
|
|
Average current liabili=
ties |
|||
|
|
|
|
|
|
=3D |
$132,000 |
|
|
($34,000 + $47,000) / 2=
|
||
|
|
|
|
|
|
=3D |
3.26 to 1 |
|
|
Cash d=
ebt
coverage ratio =3D
|
|
Net cash provided by
operating activities |
=3D |
|
|
|
Average total liabiliti=
es |
||
|
|
|
|
|
|
$132,000 ÷ |
$184,000 + $247,000 |
=3D |
|
2 |
||
|
|
|
|
|
|
|
.61 to 1 |
|
|
|
|
|
|
|
Free Cash Flow Analysis=
|
||
|
Net cash provided by operating
activities.................... |
|
$132,000 |
|
=
Less: Purchase of equipment........................................=
|
|
|
|
=
&nbs=
p;
Dividends..................=
................................................ |
|
(60,000) |
|
Free cash flow...............................................................=
...... |
|
|
Shabbo=
na
has excellent liquidity. Its financial flexibility is good. It might be not=
ed
that it substantially reduced its long-term debt in 2007 which will help its
financial flexibility.
EXERCISE 5-17 (30–35 minutes)=
|
(a) &=
nbsp; &nbs=
p; Grant
Wood Corporation |
|||
|
|
|||
|
For the Year Ended Dece=
mber
31, 2007 |
|||
|
Cash flows from operating activit=
ies |
|
|
|
|
=
Net inco=
me........................................=
...................... |
|
$55,000 |
|
|
=
Adjustme=
nts to
reconcile net income |
|
|
|
|
=
&nbs=
p;
to net cash provided by operating |
|
|
|
|
=
&nbs=
p;
activities: |
|
|
|
|
=
&nbs=
p;
Loss on sale of equipment..=
.......................... |
$ 2,000* |
|
|
|
=
&nbs=
p;
Depreciation expense.......=
............................. |
13,000 |
|
|
|
=
&nbs=
p;
Patent amortization........=
................................. |
2,500 |
|
|
|
=
&nbs=
p;
Increase in current liabilities........................ |
13,000 |
|
|
|
=
&nbs=
p;
Increase in current assets (o=
ther
than cash)........................=
...................................................... |
(29,000) |
1,500 |
|
|
=
Net cash
provided by operating activities..=
..... |
|
56,500 |
|
|
=
|
|
|
|
|
=
Cash flows from investing activit=
ies |
|
|
|
|
=
|
10,000 |
|
|
|
=
Addition=
to
building..........................=
.................... |
(27,000) |
|
|
|
=
Investme=
nt in
stock.............................=
................. |
(16,000) |
|
|
|
=
Net cash=
used
by investing activities...........=
.... |
|
(33,000) |
|
|
=
|
|
|
|
|
=
Cash flows from financing activit=
ies |
|
|
|
|
=
Issuance=
of
bonds.............................=
................... |
50,000 |
|
|
|
=
Payment =
of
dividends.........................=
................. |
(30,000) |
|
|
|
=
Purchase=
of
treasury stock....................=
............ |
(11,000) |
|
|
|
=
Net cash
provided by financing activities..=
...... |
|
9,000 |
|
|
=
Net increase in cash........................................=
........... |
|
$32,500a |
*[$10,000 – ($20,000 –
$8,000)]
aAn additional proof to arrive at the increase in cash is provided as follows:<= o:p>
|
Total
current assets—end of period |
$296,500 |
[from part (b)] |
|
Total
current assets—beginning of period |
235,000 |
|
|
Incr=
ease
in current assets during the period |
61,500 |
|
|
Incr=
ease
in current assets other than cash |
29,000 |
|
|
Increase
in cash during year |
|
|
EXERCISE 5-17 (Continued)
|
(b) &=
nbsp; &nbs=
p; &=
nbsp; Grant
Wood Corporation |
||||
|
Balance Sheet |
||||
|
Dece=
mber
31, 2007 |
||||
|
Asse=
ts |
||||
|
Current assets........................................=
....... |
|
|
$296=
,500b |
|
|
Long-term investments |
|
|
16,0=
00 |
|
|
Property, plant, and
equipment |
|
|
|
|
|
Land........................................=
................... |
|
$ 30,000 |
|
|
|
Building
($120,000 + $27,000)..............=
|
$147,000 |
|
|
|
|
Less: Ac=
cum.
depreciation |
|
|
|
|
|
Equipment
($90,000 – $20,000).........=
... |
70,000 |
|
|
|
|
Less: Ac=
cum.
depreciation |
|
|
|
|
|
&nbs=
p;
Total property, plant, and
equipment... |
|
|
201,=
000 |
|
|
Intangible
assets—patents |
|
|
|
|
|
&nbs=
p;
Total assets...............=
....................... |
|
|
$551,000 |
|
|
Liabilities and
Stockholders’ Equity |
||||
|
Current liabilities
($150,000 + $13,000)..............=
.... |
|
|
$163=
,000 |
|
|
Long-term liabilities |
|
|
|
|
|
Bonds pa=
yable
($100,000 + $50,000)..............=
. |
|
|
150,000 |
|
|
&nbs=
p;
Total liabilities..........=
....................................... |
|
|
313,000 |
|
|
Stockholders’ equity |
|
|
|
|
|
Common s=
tock........................................=
............. |
|
$180,000 |
|
|
|
Retained earnings ($44,000 + $55,000 ̵=
1;
$30,000).... |
|
69,000 |
|
|
|
&nbs=
p;
Total paid-in capital and ret=
ained
earnings..........................=
............................................. |
|
249,000 |
|
|
|
Less: Co=
st of
treasury stock....................=
......... |
|
(11,000) |
|
|
|
&nbs=
p;
Total stockholders’ equity........................... |
|
|
238,000 |
|
|
&nbs=
p;
Total liabilities and stockholders’ equity.. |
|
|
$551,000 |
|
|
b |
The
amount determined for current assets could be computed last and then is a
“plug” figure. That is, total liabilities and stockholders=
217;
equity is computed because information is available to determine this amo=
unt.
Because the total assets amount is the same as total liabilities and stoc=
kholders’
equity amount, the amount of total assets is determined. Information is
available to compute all the asset amounts except current assets and
therefore current assets can be determined by deducting the total of all =
the
other asset balances from the total asset balance (i.e., $551,000 –
$37,500 – $201,000 – $16,000). Another way to compute this
amount, given the information, is that beginning current assets plus the
$29,000 increase in current assets other than cash plus the $32,500 incre=
ase
in cash equals $296,500. |
EXERCISE 5-18 (25–35 minutes)=
|
(a)<=
span
style=3D'mso-spacerun:yes'> &nbs=
p; &=
nbsp; &nbs=
p;
Madrasah Corporation |
||
|
|
||
|
For the Year Ended Dece=
mber
31, 2007 |
||
|
Cash
flows from operating activities |
|
|
|
=
Net inco=
me........................................=
.................. |
|
$44,000 |
|
=
Adjustme=
nt to
reconcile net income |
|
|
|
=
&nbs=
p;
to net cash provided by opera=
ting
activities: |
|
|
|
=
Deprecia=
tion........................................=
............... |
$ 6,000 |
|
|
=
Increase=
in
accounts payable..................=
....... |
5,000 |
|
|
=
Increase=
in
accounts receivable...............=
..... |
(18,000) |
(7,000) |
|
=
Net cash
provided by operating activities..=
. |
|
37,000 |
|
=
|
|
|
|
=
Cash flows from Investing activit=
ies |
|
|
|
=
Purchase=
of
equipment.........................=
........... |
|
(17,000) |
|
=
|
|
|
|
=
Cash flows from financing activit=
ies |
|
|
|
=
Issuance=
of
stock.............................=
................. |
20,000 |
|
|
=
Payment =
of
dividends.........................=
.............. |
(33,000) |
|
|
=
Net cash=
used
by financing activities...........=
|
|
(13,000) |
|
=
Net increase in cash........................................=
....... |
|
$ 7,000 |
|
=
Cash at beginning of year..................................... |
|
13,000 |
|
=
Cash at end of year........................................=
......... |
|
$20,000 |
|
=
|
2007 |
2006 |
|
=
(b) Current ratio |
6.3 |
6.73 |
|
=
|
$126,000 |
$101,000 |
|
=
|
$ 20,000 |
$ 15,000 |
|
Free Cash Flow Analysis=
|
||
|
|
|
|
|
=
Net cash provided by operating
activities....................... =
|
|
$ 37,000 |
|
=
Less: Purchase of equipment........................................=
... |
|
(17,000) |
|
=
&nbs=
p;
Pay dividends..............=
............................................... |
|
(33,000) |
|
=
Free cash flow...............................................................=
........ |
|
|
(c) Although, Madrasah’s current ratio has declined from
2006 to 2007, it is still in excess of 6. It appears the company has good
liquidity and financial flexibility.
TIME AND PURPOSE OF PROBLEMS
Problem
5-1 (Time 30–35 minutes)
Purpos=
e—to provide the student with =
the
opportunity to prepare a balance sheet, given a set of accounts. No monetar=
y amounts
are to be reported.
Problem
5-2 (Time 35–40 minutes)
Purpose—to provide the student with the opportunity to prepare a complete balance sheet, invol= ving dollar amounts. A unique feature of this problem is that the student must s= olve for the retained earnings balance.
Problem
5-3 (Time 40–45 minutes)
Purpose—to provide an opportunity for the student to prepare a balance sheet in good f= orm. Emphasis is given in this problem to additional important information that should be disclosed. For example, an inventory valuation method, bank loans secured by long-term investments, and information related to the capital st= ock accounts must be disclosed.
Problem
5-4 (Time 40–45 minutes)
Purpos=
e—to provide the student with =
the
opportunity to analyze a balance sheet and correct it where appropriate. The
balance sheet as reported is incomplete, uses poor terminology, and is in
error. A challenging problem.
Problem 5-5&n=
bsp;
(Time 40–45 minutes)
Purpose—to provide the student with the opportunity to prepare a balance sheet in good form. Additional information is provided on each asset and liability catego= ry for purposes of preparing the balance sheet. A challenging problem.
Problem 5-6&n=
bsp;
(Time 35–45 minutes)
Purpose—to provide the student with an opportunity to prepare a complete statement of = cash flows. A condensed balance sheet is also required. The student is also requ= ired to explain the usefulness of the statement of cash flows. Because the textb= ook does not explain in Chapter 5 all of the steps involved in preparing the statement of cash flows, assignment of this problem is dependent upon additional instruction by the teacher or knowledge gained in elementary financial accounting.
Problem 5-7&n=
bsp;
(Time 40–50 minutes)
Purpose—to provide the student with an opportunity to prepare a balance sheet in good = form and a more complex cash flow statement.
SOLUTI=
ONS
TO PROBLEMS
|
|
|
|
|
Company Name |
|
||||||
|
Balance Sheet |
|
||||||
|
Dece=
mber
31, 20XX |
|
||||||
|
Assets |
|||||||
|
=
Current assets |
|
|
|
||||
|
Cash on =
hand
(including petty cash) |
$XXX |
|
|
||||
|
Cash in =
bank |
XXX |
$XXX |
|
||||
|
Trading
securities |
|
XXX |
|
||||
|
Accounts
receivable |
XXX |
|
|
||||
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
||||
|
Interest
receivable |
|
XXX |
|
||||
|
Advances=
to
employees |
|
XXX |
|
||||
|
Inventor=
y (ending) |
|
XXX |
|
||||
|
Prepaid =
rent |
|
XXX |
|
||||
|
&nbs=
p;
Total current assets |
|
|
$XXX |
||||
|
|
|
|
|
||||
|
Long-term investments |
|
|
|
||||
|
Bond sin=
king
fund |
|
$XXX |
|
||||
|
Cash sur=
render
value of life insurance |
|
XXX |
|
||||
|
Land for
future plant site |
|
XXX |
|
||||
|
&nbs=
p;
Total long-term investments |
|
|
$XXX |
||||
|
|
|
|
|
||||
|
Property, plant, and equipment |
|
|
|
||||
|
Land |
|
$XXX |
|
||||
|
Building=
s |
$XXX |
|
|
||||
|
&nbs=
p;
Less: Accum. depreciation—buildings |
XXX |
XXX |
|
||||
|
Equipmen=
t |
XXX |
|
|
||||
|
&nbs=
p;
Less: Accum. depreciation—equipment |
XXX |
XXX |
|
||||
|
&nbs=
p;
Total property, plant, and equipment |
|
|
XXX |
||||
|
|
|
|
|
||||
|
Intangible assets |
|
|
|
||||
|
Copyrigh=
t |
|
$XXX |
|
||||
|
Patent |
|
XXX |
|
||||
|
&nbs=
p;
Total intangible assets |
|
|
XXX |
||||
|
Total as=
sets |
|
|
$XXX |
||||
PROBLEM 5-1 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|
||||
|
=
Current liabilities |
|
|
|
|
|
|
Notes pa=
yable |
|
$XXX |
|
|
|
|
Payroll =
taxes
payable |
|
XXX |
|
|
|
|
Accrued =
wages |
|
XXX |
|
|
|
|
Dividends
payable |
|
XXX |
|
|
|
|
Unearned
subscriptions revenue |
|
XXX |
|
|
|
|
&nbs=
p;
Total current liabilities |
|
|
$XXX |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
Bonds pa=
yable |
$XXX |
|
|
|
|
|
&nbs=
p;
Add: Premium on bonds payable=
|
XXX |
XXX |
|
|
|
|
Pension
obligations |
|
XXX |
|
|
|
|
&nbs=
p;
Total long-term liabilities |
|
|
XXX |
||
|
&nbs=
p;
Total liabilities |
|
|
XXX |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
&nbs=
p;
Preferred stock (description) |
$XXX |
|
|
|
|
|
&nbs=
p;
Common stock (description) |
XXX |
XXX |
|
|
|
|
Addition=
al
paid-in capital |
|
|
|
|
|
|
&nbs=
p;
Premium on preferred stock |
|
XXX |
|
|
|
|
&nbs=
p;
Total paid-in capital |
|
XXX |
|
|
|
|
Retained
earnings |
|
XXX |
|
||
|
&nbs=
p;
Total paid-in capital and |
|
|
|
||
|
Less: Tr=
easury
stock (description) |
|
(XXX) |
|
|
|
|
&nbs=
p;
Total stockholders’ equity |
|
|
XXX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letterman, Inc. |
|||
|
Balance Sheet |
|||
|
Dece=
mber
31, 2007 |
|||
|
Assets |
|||
|
=
Current assets |
|
|
|
|
Cash........................................=
.......... |
|
$ |
|
|
Trading
securities........................=
.. |
|
121,=
000 |
|
|
Notes
receivable........................=
..... |
|
545,=
700 |
|
|
Income t=
axes
receivable................ =
|
|
97,6=
30 |
|
|
Inventor=
ies....................................... =
|
|
239,=
800 |
|
|
Prepaid
expenses..........................=
|
|
87,920 |
|
|
&nbs=
p;
Total current assets.......=
......... |
|
|
$1,4=
52,050 |
|
|
|
|
|
|
Property,
plant, and equipment |
|
|
|
|
Land........................................=
.......... |
|
$ |
|
|
Building=
........................................=
.... |
$1,6=
40,000 |
|
|
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
|
Equipmen=
t........................................=
|
1,47=
0,000 |
|
|
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
Goodwill=
........................................=
... |
|
|
125,000 |
|
&nbs=
p; Total
assets............................=
... |
|
|
$4,704,850<= o:p> |
PROBLEM
5-2 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|||
|
Current
liabilities |
|
|
|
|
Accounts
payable...........................=
.. |
|
$ 590,000 |
|
|
Notes pa=
yable
to banks................... |
|
265,=
000 |
|
|
Payroll =
taxes
payable....................... |
|
177,=
591 |
|
|
Taxes pa=
yable................................... |
|
98,3=
62 |
|
|
Rent pay=
able...................................... <=
/span> |
|
45=
,000 |
|
|
&nbs=
p;
Total current liabilities..=
............. |
|
|
$1,1=
75,953 |
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
|
Unsecured
notes payable |
|
|
|
|
&nbs=
p;
(long-term)................=
...................... |
|
$1,6=
00,000 |
|
|
Bonds pa=
yable.................................. |
$300=
,000 |
|
|
|
Less: Discount =
on
bonds |
|
|
|
|
Long-term rental obligations......... |
|
480,000 |
2,365,000 |
|
&nbs=
p;
Total liabilities..........=
.................... |
|
|
3,54=
0,953 |
|
|
|
|
|
|
Stockholder=
s’
equity |
|
|
|
|
Capital =
stock |
|
|
|
|
&nbs=
p;
Preferred stock, $10 par; 20,000 |
|
|
|
|
&nbs=
p;
Common stock, $1 par; |
|
|
|
|
Retained
earnings |
|
|
|
|
&nbs=
p;
Total stockholders’ equity |
|
|
|
|
&nbs=
p;
Total liabilities and |
|
|
|
|
|
|
|
|
Side Kicks Company |
||||
|
Balance Sheet |
||||
|
Dece=
mber
31, 2007 |
||||
|
Assets |
||||
|
Current ass=
ets |
|
|
|
|
|
Cash........................................=
.............. |
|
$ |
|
|
|
Accounts
receivable........................=
. |
$163=
,500 |
|
|
|
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|
|
Inventor=
y—at
LIFO cost.................... |
|
308,=
500 |
|
|
|
Prepaid
insurance.........................=
.... |
|
5,900 |
|
|
|
&nbs=
p;
Total current assets.......=
............. |
|
|
$ |
|
|
|
|
|
|
|
|
Long-term
investments |
|
|
|
|
|
Investme=
nts in
stocks and bonds, |
|
|
|
|
|
|
|
|
|
|
|
Property,
plant, and equipment |
|
|
|
|
|
Cost of
uncompleted plant facilities |
|
|
|
|
|
&nbs=
p;
Land.......................=
......................... |
85,0=
00 |
|
|
|
|
&nbs=
p;
Building in process of |
|
|
|
|
|
Equipmen=
t........................................=
... |
400,=
000 |
|
|
|
|
&nbs=
p;
Less: Accum. depreciation..=
...... |
140,000 |
260,000 |
469,=
000 |
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
Patents—at cost less amortization |
|
|
36=
,000 |
|
|
&nbs=
p;
Total assets...............=
.................... |
|
|
$1,354,200<= o:p> |
|
PROBLEM 5-3 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|||
|
Current
liabilities |
|
|
|
|
Notes pa=
yable,
secured by |
|
|
|
|
Accounts
payable...........................=
.... |
|
148,=
000 |
|
|
Accrued
expenses..........................=
.... |
|
49,200 |
|
|
&nbs=
p;
Total current liabilities..=
............... |
|
|
$ 291,200 |
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
|
8% bonds
payable, due |
|
|
|
|
Le=
ss:
Unamortized discount on |
|
|
|
|
&nbs=
p;
Total liabilities..........=
...................... |
|
|
671,=
200 |
|
|
|
|
|
|
Stockholder=
s’
equity |
|
|
|
|
Common s=
tock |
|
|
|
|
&nbs=
p;
Authorized 600,000 shares of $1 |
|
|
|
|
Premium =
on
common stock.............. =
|
45,000 |
545,=
000 |
|
|
Retained
earnings..........................=
..... |
|
138,000 |
<=
/span>683,000 |
|
&nbs=
p;
Total liabilities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell Crowe Corporati=
on |
|||||
|
Balance Sheet |
|||||
|
Dece=
mber
31, 2007 |
|||||
|
Assets |
|||||
|
Current ass=
ets |
|
|
|
||
|
Cash........................................=
............ |
|
$175=
,900 |
|
||
|
Accounts
receivable........................=
|
|
170,=
000 |
|
||
|
Inventor=
ies........................................=
. |
|
312,100 |
|
||
|
&nbs=
p;
Total current assets.......=
............ |
|
|
$658=
,000 |
||
|
|
|
|
|
||
|
Long-term investments |
|
|
|
||
|
Assets
allocated to trustee for |
|
|
|
||
|
Cash in =
bank...................................... <=
/span> |
|
70,0=
00 |
|
||
|
U.S. Tre=
asury
notes, at fair value.. |
|
138,000 |
208,=
000 |
||
|
|
|
|
|
||
|
Property, plant, and equipment |
|
|
|
||
|
Land........................................=
............. |
|
750,=
000 |
|
||
|
Building=
s........................................=
.... |
$1,0=
70,000a |
|
|
||
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
||
|
&nbs=
p; Total
assets............................=
..... |
|
|
$2,276,000<= o:p> |
||
|
|
|
|
|
||
|
Liabilities=
and
Stockholders’ Equity |
|||||
|
=
Current liabilities |
|
|
|
||
|
Notes payable—current installment |
|
$100=
,000 |
|
||
|
Federal =
income
taxes payable....... |
|
75,000 |
|
||
|
&nbs=
p;
Total current liabilities..=
............. |
|
|
$ |
||
PROBLEM 5-4 (Continued)
|
Long-term
liabilities |
|
|
|
|
No=
tes
payable...........................=
.......... |
|
|
500,000=
b |
|
&nbs=
p;
Total liabilities..........=
...................... |
|
|
675,=
000 |
|
|
|
|
|
|
Stockholder=
s’
equity |
|
|
|
|
Common s=
tock,
no par; 1,000,000 |
|
|
|
|
Retained
earnings..........................=
..... |
|
538,000=
c |
|
|
|
|
1,688,000 |
|
|
Less:&nbs=
p;
Treasury stock, at cost (50,000 |
|
|
|
|
&nbs=
p;
Total stockholders’ equity.......... |
|
|
1,601,000 |
|
&nbs=
p;
Total liabilities and |
|
|
|
|
|
|
|
|
a$1,640,000 – $570,000 (to
eliminate the excess of appraisal value over cost from the Buildings accoun=
t.
Note that the appreciation capital account is also deleted.)
b$600,000 – $100,000 (to
reclassify the currently maturing portion of the notes payable as a current
liability.)
c$658,000 – $120,000 (to remove
the value of goodwill from retained earnings. Note 2 indicates that retained
earnings was credited. Note that the goodwill account is also deleted.)
Note: As an
alternate presentation, the cash restricted for plant expansion would be ad=
ded
to the general cash account and then subtracted. The amount reported in the
investments section would not change.
|
|
|
|
|
Stephen King Corporatio=
n |
|||
|
Balance Sheet |
|||
|
Dece=
mber
31, 2007 |
|||
|
Assets |
|||
|
Current ass=
ets |
|
|
|
|
Cash........................................=
............ |
|
$114=
,000 |
|
|
Trading
securities—at fair value... =
|
|
80,0=
00 |
|
|
Accounts
receivable........................=
|
$ 170,000 |
|
|
|
&nbs=
p;
Less: Allowance for doubtful |
|
|
|
|
Inventor=
ies,
at lower of cost |
|
|
|
|
&nbs=
p;
Total current assets.......=
............ |
|
|
$ |
|
|
|
|
|
|
Long-term investments |
|
|
|
|
Investme=
nts in
common stock |
|
|
|
|
Bond sin=
king
fund............................ <=
/span> |
|
250,=
000 |
|
|
Cash sur=
render
value of life |
|
|
|
|
Land hel=
d for
future use.................. |
|
270,000 |
830,=
000 |
|
|
|
|
|
|
Property, plant, and equipment |
|
|
|
|
Land........................................=
............. |
|
500,=
000 |
|
|
Building=
s........................................=
.... |
1,04=
0,000 |
|
|
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
|
Equipmen=
t........................................=
.. |
450,=
000 |
|
|
|
&nbs=
p;
Less: Accum. depreciation— |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
Franchis=
e........................................=
... |
|
165,=
000 |
|
|
Goodwill=
........................................=
...... |
|
100,000 |
265,000 |
|
&nbs=
p;
Total assets...............=
.................. |
|
|
$3,079,000<= o:p> |
PROBLEM 5-5 (Continued)
|
Liabilities=
and
Stockholders’ Equity |
|||||
|
Current
liabilities |
|
|
|
||
|
Accounts
payable...........................=
.. |
|
$ |
|
||
|
Notes pa=
yable.................................... |
|
80,0=
00 |
|
||
|
Taxes pa=
yable................................... |
|
40,0=
00 |
|
||
|
Unearned
revenue...........................=
. |
|
5,000 |
|
||
|
&nbs=
p;
Total current liabilities..=
.............. |
|
|
$ |
||
|
|
|
|
|
||
|
Long-term
liabilities |
|
|
|
||
|
Notes pa=
yable.................................... |
|
$ |
|
||
|
7%= bonds payable, due 2015........ <= o:p> |
$1,0=
00,000 |
|
|
||
|
&nbs=
p;
Less: Discount on bonds payab=
le.. |
40=
,000 |
960,000 |
1,080,000 |
||
|
&nbs=
p;
Total liabilities..........=
.................... |
|
|
1,30=
9,000 |
||
|
|
|
|
|
||
|
Stockholder=
s’
equity |
|
|
|
||
|
Capital =
stock |
|
|
|
||
|
&nbs=
p;
Preferred stock, no par value; |
|
|
|
||
|
Common s=
tock,
$1 par value; |
|
|
|
||
|
Paid-in
capital in excess of par on |
|
|
|
||
|
Retained
earnings..........................=
.. |
|
320,000 |
|
||
|
&nbs=
p;
Total stockholders’ equity......... |
|
|
1,770,000 |
||
|
&nbs=
p;
Total liabilities and |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
(a) &=
nbsp; &nbs=
p; &=
nbsp; Alistair
Cooke, Inc. |
||
|
|
||
|
For the Year Ended Dece=
mber
31, 2007 |
||
|
Cash flows from operating activit=
ies |
|
|
|
=
Net inco=
me........................................=
.................. |
|
$32,000 |
|
=
Adjustme=
nts to
reconcile net income to =
net cash=
provided
by operating activities |
|
|
|
=
&nbs=
p;
Depreciation expense.......=
......................... |
12,000 |
|
|
=
&nbs=
p;
Gain on sale of investments=
...................... |
(3,400) |
|
|
=
&nbs=
p;
Increase in account receivable |
|
|
|
=
Net cash
provided by operating activities..=
. |
|
|
|
=
|
|
|
|
=
Cash flows from investing activit=
ies |
|
|
|
=
|
17,000 |
|
|
=
Purchase=
of
land..............................=
................. |
(18,000) |
|
|
=
Net cash=
used
by investing activities...........=
. |
|
(1,000) |
|
=
|
|
|
|
=
Cash flows from financing activit=
ies |
|
|
|
=
Issuance=
of
common stock......................=
....... |
24,000 |
|
|
=
Retireme=
nt of
notes payable.....................=
...... |
(16,000) |
|
|
=
Payment =
of
cash dividends....................=
......... |
(8,200)=
|
|
|
=
Net cash=
used
by financing activities...........=
|
|
(200) |
|
=
|
|
|
|
=
Net increase in cash........................................=
....... |
|
19,000 |
|
=
Cash at beginning of year..................................... |
|
20,000 |
|
Cash at end of year........................................=
......... |
|
|
Noncash investing and financing
activities
Land purch=
ased
through issuance of $30,000 of bonds
PROBLEM
5-6 (Continued)
(b)
|
|
||||||
|
|
||||||
|
December 31, 2007 |
||||||
|
Assets |
|
Liabilities=
and
Stockholders’ Equity |
||||
|
Cash |
$39,000 |
|
|
Accounts payable |
$30,000 |
|
|
Accounts
|
|
|
|
Long-term
notes payable |
|
|
|
Investments |
|
(1) |
|
Bonds
payable |
|
(5) |
|
Plant
assets (net) |
|
(2) |
|
Common
stock |
|
(6) |
|
Land |
|
(3) |
|
Retained
earnings |
|
(7) |
|
|
$256,000 |
|
|
|
$256,000 |
|
(1)
$32,000 – ($17,000 – $3,400)
(2)
$81,000 – $12,000
(3)
$40,000 + $18,000 + $30,000
(4)
$41,000 – $16,000
(5)
$0 + $30,000
(6)
$100,000 + $24,000
(7)
$23,200 + $32,000 – $8,200
(c) Cash flow information is useful for
assessing the amount, timing, and uncertainty of future cash flows. For
example, by showing the specific inflows and outflows from operating
activities, investing activities, and financing activities, the user has a
better understanding of the liquidity =
and
financial flexibility of the enterprise. Similarly, these reports are usefu=
l in
providing feedback about the flow of enterprise resources. This
information should help users make more accurate predictions of future cash
flow. In addition, some individuals have expressed concern about the qualit=
y of
the earnings because the measurement of the income depends on a number of
accruals and estimates which may be somewhat subjective. As a result, the
higher the ratio of cash provided by operating activities to net income, the
more comfort some users have in the reliability of the earnings. In this
problem the ratio of cash provided by operating activities to net income is=
63%
($20,200 ÷ $32,000).
PROBLEM
5-6 (Continued)
An
analysis of Cooke’s free cash flow indicates it is negative as shown
below:
|
Free Cash Flow Analysis=
|
||
|
|
|
|
|
=
Net cash provided by operating
activities....................... =
|
|
$20,200 |
|
=
Less: Purchase of land........................................=
............. |
|
(18,000) |
|
=
&nbs=
p;
Dividends..................=
................................................ |
|
(8,200) |
|
Free cash flow...............................................................=
........ |
|
|
Its current cash debt
coverage ratio is .67 to 1 ![](3D"Chapter5_files/image003.gif")
and its cas=
h debt
coverage ratio is .26 to 1 ![](3D"Chapter5_files/image006.gif")
which are
reasonable. Overall, it appears that its liquidity position is avera=
ge
and overall financial flexibility should be improved.
|
|
|
|
(a) &=
nbsp; &nbs=
p; &=
nbsp; Jay
Leno Inc. |
||
|
|
||
|
For the Year Ended Dece=
mber
31, 2007 |
||
|
Cash flows from operating activit=
ies |
|
|
|
=
Net inco=
me........................................=
.................. |
|
$35,000 |
|
=
Adjustme=
nts to
reconcile net income to =
&nbs=
p;
net cash provided by operating activities |
|
|
|
=
&nbs=
p;
Depreciation expense.......=
......................... |
$12,000 |
|
|
=
&nbs=
p;
Loss on sale of investments=
..................... |
3,000 |
|
|
=
&nbs=
p;
Increase in accounts payable =
&nbs=
p;
($40,000 – $30,000)..=
.............................. |
|
|
|
=
&nbs=
p;
Increase in accounts receivable =
&nbs=
p;
($42,000 – $21,200)..=
.............................. |
(20,800) |
4,200=
|
|
=
Net cash
provided by operating activities..=
. |
|
39,200 |
|
=
|
|
|
|
=
Cash flows from investing activit=
ies |
|
|
|
=
|
29,000 |
|
|
=
Purchase=
of
land..............................=
................. |
(38,000) |
|
|
=
Net cash=
used
by investing activities...........=
. |
|
(9,000) |
|
=
|
|
|
|
=
Cash flows from financing activit=
ies |
|
|
|
=
Issuance=
of
common stock......................=
....... |
26,000 |
|
|
=
Payment =
of
cash dividends....................=
......... |
(10,000)=
|
|
|
=
Net cash
provided by financing activities..=
.. |
|
16,000 |
|
=
|
|
|
|
=
Net increase in cash........................................=
....... |
|
46,200 |
|
=
Cash at beginning of year..................................... |
|
20,000 |
|
Cash at end of year........................................=
......... |
|
|
Noncash investing and financing
activities
Land purch=
ased
through issuance of $30,000 of bonds
PROBLEM 5-7 (Continued)
|
(b) &=
nbsp; &nbs=
p; &=
nbsp; Jay
Leno Inc. |
||||||
|
|
||||||
|
December 31, 2007 |
||||||
|
Assets |
|
Liabilities=
and
Stockholders’ Equity |
||||
|
Cash |
$66,200 |
|
|
Accounts payable |
$40,000 |
|
|
Accounts
|
|
|
|
Bonds
payable Common
stock |
|
(3) (4) |
|
Plant
assets (net) |
|
(1) |
|
Retained
earnings |
|
(5) |
|
Land |
|
(2) |
|
|
$285,200 |
|
|
|
$285,200 |
|
|
|
|
|
(1)
$81,000 – $12,000
(2)
$40,000 + $38,000 + $30,000
(3)
$41,000 + $30,000
(4)
$100,000 + $26,000
(5)
$23,200 + $35,000 – $10,000
(c)=
An
analysis of Leno’s free cash flow indicates it is negative as shown
below:
|
Free Cash Flow Analysis=
|
||
|
|
|
|
|
=
Net cash provided by operating
activities........................=
|
|
$39,200 |
|
=
Less: Purchase of land........................................=
.............. |
|
(38,000) |
|
=
&nbs=
p;
Dividends..................=
.................................................. |
|
(10,000) |
|
Free cash flow...............................................................=
......... |
|
|
PROBLEM 5-7 (Continued)
Its current cash debt
coverage is 1.12 to 1 ![](3D"Chapter5_files/image009.gif")
Overall, it
appears that its liquidity position is average and overall financial
flexibility should be improved.
*($30,000 + $40,000) ÷ 2
(d) This type of information is useful for
assessing the amount, timing, and uncertainty of future cash flows. For
example, by showing the specific inflows and outflows from operating
activities, investing activities, and financing activities, the user has a
better under-standing of the liquidity and financial flexibility of the
enterprise. Similarly, these reports are useful in providing feedback about=
the
flow of enterprise resources. This information should help users make =
more
accurate predictions of future cash flow. In addition, some individuals have
expressed concern about the quality of the earnings because the measurement=
of
the income depends on a number of accruals and estimates which may be somew=
hat
subjective. As a result, the higher the ratio of cash provided by operating
activities to net income, the more comfort some users have in the reliabili=
ty
of the earnings.
&n=
bsp; =
; &n=
bsp; =
; &n=
bsp; =
; &n=
bsp; =
; &n=
bsp;