Chapter 1: Accounting as a Form of Communication
393. Read the information about Cargo Corporation.
Required:
Prepare the current assets section of the balance sheet for Cargo Corp. at December 31, 2015. You may omit the
heading. How does the concept of liquidity apply?
394. Read the information about Cargo Corporation.
Required:
Calculate Cargo’s current ratio at December 31, 2015. What does this ratio tell you about the “composition” of the
current assets?
Chapter 1: Accounting as a Form of Communication
395. Read the information about Cargo Corporation.
Required:
Calculate the amount of working capital at December 31, 2015 for Cargo Corp. What can you learn from the
current ratio that you cannot learn from the amount of working capital?
Chapter 1: Accounting as a Form of Communication
Fasoli, Inc.
The following balance sheet items from Fasoli, Inc. are listed for December 31, 2015:
Accounts payable
$ 32,650
Interest payable
2,200
Accounts receivable
26,500
Land
250,000
Accumulated depreciation—buildings
40,000
Marketable securities
15,000
Merchandise inventory
112,900
Accumulated depreciation—equipment
12,500
Notes payable, due April 15, 2016
6,500
Office supplies
200
Notes payable, due December 31, 2019
251,630
Paid-in capital in excess of par value
75,000
Buildings
150,000
Patents
45,000
Capital stock, $1 par value
200,000
Prepaid rent
3,800
Cash
60,990
Retained earnings
113,510
Equipment
84,500
Salaries payable
7,400
Income taxes payable
7,500
396. Read the information about Fasoli, Inc.
Required:
Present the Current Assets section (including the total) of a classified balance sheet.
Chapter 1: Accounting as a Form of Communication
397. Read the information about Fasoli, Inc.
Required:
Prepare the Stockholders’ Equity section of the classified balance sheet, including the total stockholders’ equity
amount.
398. Read the information about Fasoli, Inc.
Required:
Present the current liabilities section (including the total) of a classified balance sheet.
399. Read the information about Fasoli, Inc.
Required:
Compute Fasoli’s current ratio. On the basis of your answer, does Fasoli appear to be liquid? What other information
do you need to fully answer that question?
Chapter 1: Accounting as a Form of Communication
400. Read the information about Fasoli, Inc.
Required:
Prepare the Assets section of the classified balance sheet.
401. Read the information about Fasoli, Inc.
Required:
Prepare the Liabilities section of the classified balance sheet, including total liabilities balance.
Chapter 1: Accounting as a Form of Communication
402. Harrison Company calculated the following amounts concerning its financial information for the years ending
December 31, 2015 and 2014:
2015
2014
Current ratio
3.1 to 1
2.0 to 1
Profit margin
22 %
18%
Required:
Examine Harrison’s ratios. Is the change in the current ratio favorable or not? Explain.
Chapter 1: Accounting as a Form of Communication
Cash
Accounts receivable
Land
Building
Equipment
403. Complete the December 31, 2015 (first year of operation) Balance sheet for Weglein Company using the following
information:
(a) Retained earnings at December 31, 2015 was $51,000.
(b) Total stockholders’ equity at January 1, 2015 was $139,000.
(c) On December 30, 2015, additional capital stock was sold for cash, $55,000
(d) The land and building were purchased on December 30, 2015 for $150,000.
Weglein Company
Balance Sheet
December 31, 2015
Cash
Assets
Liabilities & Stockholders’ Equity
$ 80,000
Liabilities:
Accounts receivable
?
Notes payable ?
Land
112,000
Accounts payable 45,000
Buildings
?
Total liabilities ?
Equipment
30,000
Stockholders’ equity:
Capital Stock ?
Retained earnings ?
Total liabilities and
Total assets $ stockholders’ equity $390,000
Chapter 1: Accounting as a Form of Communication
404. Harrison Company calculated the following amounts concerning its financial information for the years ending
December 31, 2015 and 2014:
2015
2014
Current ratio
3.1 to 1
2.0 to 1
Profit margin
22 %
18%
Required:
Suppose Harrison Company had a decrease in its cash account from 2014 to 2015. Would the other current asset
amounts have increased or decreased? Explain.
Fellsmere Corporation
Presented below are the condensed balance sheets of Fellsmere Corporation at December 31, 2014 and 2013. Net
income for the years ending December 31, 2014 and 2013 is $346,000 and $109,000, respectively.
Current assets
Property, plant, & equipment
(net)
Intangibles and other assets
Total assets
December 31, 2014
$2,228,186
December 31, 2013
$2,544,683
530,589
376,647
131,206
118,121
$2,889,981
$3,039,451
Current liabilities
$1,429,674
$1,003,906
Long–term obligations
3,360
7,240
Warranty and other liabilities
112,971
98,081
Total liabilities
$1,546,605
$1,109,227
Stockholders’ equity:
Common stock
$ 1,566
$ 501,631
Additional paid–in capital
365,986
799,483
Retained earnings
980,509
634,509
Accumulated other
comprehensive loss
(4,085)
(5,489)
Total stockholders’ equity
$1,343,976
$1,930,224
Total liabilities and stockholders’
equity
$2,889,981
$3,039,451
Chapter 1: Accounting as a Form of Communication
405. Read the information about Fellsmere Corporation.
Required:
(A) Did Fellsmere’s current ratio increase or decrease from 2013 to 2014? Make any necessary calculations and
explain your answer. Which financial statement users are most concerned with this ratio?
(B) The balance sheets show a large increase in retained earnings during 2014. Identify the possible reason(s) for
this increase.
406. Read the information about Fellsmere Corporation.
Required:
(A) Explain the change in Fellsmere’s working capital from 2013 to 2014. Why do users believe the current ratio
provides more information than the dollar amount of working capital? Explain.
(B) Fellsmere Corporation‘s creditors need to know whether its working capital position improved during the year.
How would you evaluate this?
Chapter 1: Accounting as a Form of Communication
Crystal, Inc.
Crystal, Inc. reported $52,000 of net income for 2014. Crystal’s balance sheet at December 31, 2014 includes the
following amounts:
Wages payable
$ 1,000
Inventory
$26,000
Prepaid rent
3,000
Land
40,000
Cash
15,000
Accounts receivable
22,000
Accounts payable
25,000
Capital stock
40,000
Retained earnings
29,000
Income taxes payable
11,000
407. Read the information about Crystal, Inc. Which item is most “liquid“? Why is liquidity important?
408. Read the information about Crystal, Inc. Has Crystal been profitable since it began operations? How do you know?
409. The balance sheet of Evanston Inc. includes the following items:
Cash
$ 21,500
Accounts receivable
12,400
Inventory
45,300
Prepaid insurance
1,800
Land
80,000
Accounts payable
49,000
Salaries payable
1,625
Capital stock
105,100
Retained earnings
5,700
Required:
(1) Determine the current ratio and working capital.
(2) What does the composition of the current assets tell you about Evanston’s liquidity?
(3) What other information do you need to fully assess Evanston’s liquidity?
Chapter 1: Accounting as a Form of Communication
Eagle Corporation
Presented below are all of the items from Eagle Corporation’s income statement for the years ending December
31, 2014 and 2013.
December 31, 2014
December 31, 2013
Service fees
$2,300,000
$2,100,000
General and administrative expenses
1,900,000
1,500,000
Other income, net
40,000
20,000
Income taxes
150,000
180,000
410. Read the information about Eagle Corporation.
Required:
How much is net income for the year ended December 31, 2014? If Eagle Corporation had used a single-step
statement, by how much would net income be different? Explain.
411. Read the information about Eagle Corporation.
Required:
Compare the profit margins for 2014 and 2013. Is the company becoming more or less profitable or staying the
same? What could be contributing to this?
Chapter 1: Accounting as a Form of Communication
Burke Company
The following income statement items are taken from the records of Burke Company for the year ended December
31, 2014:
Advertising expense
$2,600
Commission expense
3,515
Cost of goods sold
29,200
Depreciation expense – Office Building
4,000
Income tax expense
190
Insurance expense – sales person’s auto
3,350
Interest expense
1,400
Interest revenue
2,340
Rent revenue
7,700
Salaries and wages expense – Office
13,660
Sales Revenue
50,300
Supplies expense – Office
1,990
412. Read the information about Burke Company.
Required:
Prepare a multiple-step income statement for the year ended December 31, 2014.
Gross profit
Total selling expenses
Total operating expenses
Other revenues and expenses:
Chapter 1: Accounting as a Form of Communication
413. Read the information about Burke Company
Required:
Prepare a single-step income statement for the year ended December 31, 2014.
414. The 2015 income statement of Cigmar Enterprises shows operating revenues of $120,500, selling expenses of
$35,200, general and administrative expenses of $29,900, interest expense of $1,500, and income tax expense of
$10,520. Cigmar’s stockholders’ equity was $280,000 at the beginning of the year and $320,000 at the end of the
year. The company has 20,000 shares of stock outstanding at December 31, 2015.
Required:
Compute Cigmar’s profit margin. What other information would you need in order to comment on whether this ratio
is favorable?
Chapter 1: Accounting as a Form of Communication
415. The 2014 income statement of Nasir Inc. shows operating revenues of $135,800, selling expenses of $40,310,
general and administrative expenses of $33,990, interest expense of $880, and income tax expense of $13,090.
Nasir’s stockholders’ equity was $250,000 at the beginning of the year and $345,000 at the end of the year. The
company has 10,000 shares of stock outstanding at December 31, 2014.
Required:
Compute Nasir’s profit margin. What other information would you need in order to comment on whether this ratio
is favorable?
416. Hammar Corporation’s partial income statement is as follows:
Sales
$2,400,000
Cost of sales
900,000
Selling expenses
121,600
General and admin. expenses
150,000
Required:
Determine the profit margin. Would you invest in Hammar Corporation? Explain your answer.
Chapter 1: Accounting as a Form of Communication
417. Peterson Corporation’s partial income statement is as follows:
Sales
$1,300,000
Cost of sales
300,000
Selling expenses
210,000
General and admin. expenses
150,000
Required:
Determine the profit margin. Would you invest in Peterson Corporation? Explain your answer.
Chapter 1: Accounting as a Form of Communication
418. Powder Corporation began operations on January 2, 2013, with a total investment of $150,000 by its stockholders.
Net income for its first year of business was $90,000. During 2014 and 2015, net income increased to $188,000 and
to $217,000, respectively. Powder paid $85,000 in dividends to its shareholders in each of the three years.
A) In good form, prepare a statement of retained earnings for the year ended December 31, 2014.
B) How much is total retained earnings on December 31, 2015?
C) Explain the link between the statement of retained earnings and the balance sheet.
Chapter 1: Accounting as a Form of Communication
419. The following information is taken from Harvey Company’s balance sheet at December 31, 2014:
Cash
$ 24,000
Retained earnings
14,000
Inventory
8,000
Equipment
38,000
Accounts payable
7,000
Bonds payable
23,000
Capital stock
26,000
Required:
Using the information provided for Harvey Company, answer the following questions:
A) How much did creditors provide to Harvey Company?
B) On which financial statement would an investor look to see if any stock was issued during the year?