EXERCISE 5.5 (30–35 minutes)
BRUNO SPA
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Long-term investments
Land held for future use ……………………
€ 175,000
Property, plant, and equipment
Buildings ………………………………………….
Less: Accum. depr.—buildings …………
Equipment ………………………………………..
Less: Accum. depr.—equipment ……….
Intangible assets
Goodwill …………………………………………..
80,000
Current assets
Inventory, at lower of average
cost or net realizable value ……………..
401,000
Prepaid expenses ……………………………..
Accounts receivable …………………………
Less: Allowance for doubtful
Trading securities—at fair value ………..
Cash ………………………………………………..
Total assets …………………………………
EXERCISE 5.5 (Continued)
Equity and Liabilities
Equity
290,000 shares ………………………………….
Share premium—ordinary ………………….
Retained earnings …………………………..
Total equity …………………………………
Share capital—ordinary, €1 par,
authorized 400,000 shares, issued
Non-current liabilities
Bonds payable ………………………………….
553,000
Pension liability ………………………………..
Total non-current liabilities …………….
Current liabilities
Notes payable (due next year) ……………
125,000
Accounts payable …………………………..
135,000
Rent payable …………………………………….
Total current liabilities …………………
Total liabilities …………………………..
Total equity and liabilities ……………………….
EXERCISE 5.6 (30–35 minutes)
LIBA LTD
Statement of Financial Position
July 31, 2019
Assets
Non-current assets
Long-term investments
Bond sinking fund ………………………………………
¥ 12,000
Equipment ………………………………………………….
Intangible assets
Patents ………………………………………………………
21,000
Total non-current assets …………………………..
¥117,000
Current assets
Inventory …………………………..……………………….
65,300*
Accounts receivable …………………………..
accounts ………………………………………….
Cash ……………………………………………………….
Total current assets …………………………..
Total assets ………………………………………….
(¥60,000 + ¥5,300)
(¥52,000 – ¥5,300)
(¥69,000 – ¥12,000 + ¥9,000)
EXERCISE 5.6 (Continued)
Equity and Liabilities
Equity ……………………………………………………….
¥155,500
Non–current liabilities …………………………..
¥75,000
Current liabilities
Notes and accounts payable ……………………….
¥52,000****
Income taxes payable…………………………..
9,000
Total current liabilities …………………………..
Total liabilities …………………………..
EXERCISE 5.7 (15–20 minutes)
Current assets
Inventories at lower-of-cost (determined
using FIFO) or net-realizable-value
Finished goods ……………………………………………
€ 52,000
Work in process ………………………………………….
34,000
Raw materials ……………………………………………..
Accounts receivable (of which €50,000 is
pledged as collateral on a bank loan) …………
Less: Allowance for doubtful accounts ………..
Interest receivable [(€40,000 X 6%) X 8/12] …….
Trading securities at fair value
(cost, €31,000) …………………………………………..
Cash …………………………………………………………..
92,000*
Less: Cash restricted for plant expansion ……
*An acceptable alternative is to report cash at €42,000 and simply report
the cash restricted for plant expansion in the investments section.
EXERCISE 5.8 (10–15 minutes)
1. Dividends payable of $1,900,000 will be reported as a current liability
[(1,000,000 – 50,000) X $2.00].
2. Bonds payable of $25,000,000 and interest payable of $2,000,000
3. Customer advances of $17,000,000 will be reported as a current liability
EXERCISE 5.9 (30–35 minutes)
(a) JIN LIU LTD
Statement of Financial Position (Partial)
December 31, 2019
Current assets
Inventory ……………………………………………
¥161,000*
Prepaid expenses …………………………..
Accounts receivable …………………………..
Cash ………………………………………………….
Total current assets ……………………….
¥284,776
*
Inventory ………………………………………………………
¥171,000
Less: Inventory received on consignment ……..
10,000
Adjusted inventory ………………………………………..
¥161,000
Accounts receivable balance …………………………
¥ 89,000
collection (¥23,324 ÷ 98%) ……………………
Deduct: Accounts receivable in January ………..
21,500
***
Cash balance ………………………………………………..
¥ 40,000
Add: Cash disbursement after discount
(¥35,000 X 98%) …………………………………..
34,300
74,300
EXERCISE 5.9 (Continued)
Current liabilities
Notes payable ……………………………………………
¥ 55,000*
Accounts payable ………………………………………
*
Notes payable balance
¥ 67,000
Less: Proceeds of bank loan (¥35,324 – ¥23,324)
**
Accounts payable balance
¥ 61,000
Add: Cash disbursements
(¥27,000 – ¥10,000)
(b)
Adjustment to retained earnings balance:
[(¥23,324 ÷ 98%) X .02] ………………………….
Deduct: January sales ………………………………….
January purchase discounts
(¥35,000 X 2%) ………………………………
December purchases ………………………
Consignment inventory ……………………
Change (decrease) to retained earnings …………
Add: January sales discounts
EXERCISE 5.10 (15–20 minutes)
(a) A current liability of $150,000 should be recorded.
(b) A current liability for accrued interest of $6,000 ($900,000 X 8% X 1/12)
(c) Although bad debt expense of $200,000 should be debited and the
(d) A current liability of $80,000 (40,000 shares x $2) should be reported.
The liability is recorded on the date of declaration.
EXERCISE 5.11 (25–30 minutes)
ABBEY PLC
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Property, plant, and equipment
Equipment …………………………………………………….
£48,000
Less: Accumulated depreciation—equipment ..
9,000
Total property, plant, and equipment ………..
Intangible assets
Trademark…………………………………………………….
Current assets
Supplies …………………………..…………………………..
Prepaid insurance …………………………………………
1,000
Cash ……………………………………………………….……
6,850*
Total current assets …………………………………
Equity and Liabilities
Equity
Share capital—ordinary …………………………..
£10,000
Retained earnings (£20,000 – £2,500**) …………….
17,500
Total equity ……………………………………………..
£27,500
Non-current liabilities
£ 9,000
Current liabilities
Accounts payable ………………………………………….
Salary and Wages payable …………………………..
Unearned service revenue …………………………..
Total current liabilities …………………………..
12,500
Total liabilities ………………………………………..
EXERCISE 5.12 (30–35 minutes)
VIVALDI SPA
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Long-term investments
Investments in bonds ………………………
Investments in capital shares …………..
277,000
Property, plant, and equipment
Land ……………………………………………….
260,000
Buildings ………………………………………..
buildings …………………………………….
688,000
Equipment ……………………………………..
equipment ………………………………
1,488,000
Intangible assets
Franchises …………………………..………….
160,000
Patents …………………………………………..
195,000
355,000
Total non-current assets …………….
2,419,000
Current assets
Inventories ……………………………………..
597,000
Accounts receivable ………………………..
Less: Allow for doubtful accounts …..
410,000
Trading securities (at market) …………..
153,000
Cash ……………………………………………….
197,000
Total current assets …………………..
Total assets ………………………………
EXERCISE 5.12 (Continued)
Equity and Liabilities
Equity
Share capital—ordinary (€5 par) ………………….
€1,000,000
Retained earnings* …………………………..
income …………………………………………………..
Less: Treasury shares …………………………..
Total equity ………………………………………..
Non-current liabilities
Bonds payable …………………………………………..
€1,000,000
Long-term notes payable …………………………..
Provision for pensions …………………………..
Total non-current liabilities ………………….
1,980,000
Current liabilities
Short-term notes payable …………………………..
90,000
Accounts payable …………………………..
Dividends payable …………………………..
Accrued liabilities …………………………..
Total current liabilities ………………………..
Total liabilities …………………………..
Total equity and liabilities …………………………..
EXERCISE 5.12 (Continued)
*Computation of Retained Earnings:
Sales Revenue ………………………………………………..
€7,900,000
Investment revenue …………………………………………
63,000
Cost of goods sold ………………………………………….
Selling expenses ……………………………………………..
Administrative expenses …………………………..……..
Interest expense ……………………………………………..
(211,000)
Net income …………………………..…………………………
€ 52,000
Beginning retained earnings …………………………….
€ 78,000
Net income …………………………..…………………………
52,000
Ending retained earnings …………………………………
€ 130,000
Or ending retained earnings can be computed as follows:
Total equity (€3,776,000 – €2,757,000) ………………..
€1,019,000
Add: Treasury shares ……………………………………..
comprehensive income …………………………..
Ending retained earnings ………………………………….
€ 130,000
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)
LOPEZ INC.
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ……………………………………………………
$34,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ……………………………….
Increase in accounts receivable ………………..
Increase in accounts payable ……………………
8,000
Net cash provided by operating activities ……….
Cash flows from investing activities
Purchase of equipment ………………………………….
Cash flows from financing activities
Issuance of ordinary shares …………………………..
20,000
Payment of cash dividends …………………………..
(13,000)
Net cash provided by financing activities………..
7,000
Net increase in cash …………………………..……………….
Cash at beginning of year ……………………………………
EXERCISE 5.15 (25–35 minutes)
(a) YOON LTD
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income …………………………..………………………..
W160,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………………………………..
Loss on sale of investments (W106,000 – W89,000) ..
Decrease in accounts receivable(W185,000 – W180.000)
Decrease in current liabilities . (W134,000 – W151,000)
Net cash provided by operating activities ………..
Cash flows from investing activities
Sale of investments
[(W74,000 – W52,000) – W7,000] ……………………
15,000
Purchase of equipment (W298,000 – W240,000) …….
(58,000)
Net cash used by investing activities ……………….
(43,000)
Cash flows from financing activities
Payment of cash dividends ……………………………..
Net increase in cash …………………………………………….
Cash at beginning of year …………………………………….
(b) Free Cash Flow Analysis
Net cash provided by operating activities ………………
W172,000
Less: Purchase of equipment ………………………………
Dividends ………………………………………………….
(50,000)
Free cash flow ……………………………………………………..
EXERCISE 5.16 (25–35 minutes)
(a) OROZCO AG
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ……………………………………………………..
€105,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense ……….. (€69,000 – €42,000)
Decrease in inventory ……. (€180,000 – €189,000)
Increase in accounts receivable(€82,000 – €66,000)
Decrease in accounts payable (€34,000 – €47,000)
(13,000)
Net cash provided by operating activities …………
€112,000
Cash flows from investing activities
Sale of land ………………………….. (€110,000 – €71,000)
Purchase of equipment ……….. (€270,000 – €200,000)
(70,000)
Net cash used by investing activities ……………….
(31,000)
Cash flows from financing activities
Payment of cash dividends ……………………………..
(40,000)
Net increase in cash …………………………..…………………
41,000
Cash at beginning of year ……………………………………..
22,000
EXERCISE 5.16 (Continued)
(b) Current cash debt coverage =
Cash debt coverage =
Free Cash Flow Analysis
Net cash provided by operating activities ……………………..
€112,000
Less: Purchase of equipment ……………………………………..
(70,000)
Dividends………………………………………………………….
EXERCISE 5.17 (30–35 minutes)
(a) CHEKOV CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income ………………………………………………………
$55,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………… ($4,000 + $9,000)
Patent amortization ……………………………………..
2,500
Loss on sale of equipment …………………………..
3,000*
Increase in current liabilities ………………………..
Increase in current assets (other than cash) …….
(25,000)
6,500
Net cash provided by operating activities ………….
Cash flows from investing activities
Sale of equipment …………………………………………….
9,000
Addition to building ………………………………………….
(27,000)
Investment in debt securities …………………………….
(16,000)
Net cash used by investing activities …………………
(34,000)
Cash flows from financing activities
Issuance of bonds ……………………………………………
Payment of dividends …………………………..…………..
(25,000)
Purchase of treasury shares ……………………………..
(11,000)
Net cash provided by financing activities …………..
Total current assets—end of period
$301,500
[from part (b)]
Total current assets—beginning of period
(235,000)
Increase in current assets during the period
Increase in current assets other than cash
(25,000)
EXERCISE 5.17 (Continued)
(b) CHEKOV CORPORATION
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Long-term investments ………………………..
$ 16,000
Property, plant, and equipment
Land …………………………..……………………..
$30,000
Buildings ($120,000 + $27,000) …………….
Less: Accum. depreciation–buildings
Equipment ($90,000 – $20,000) …………….
Less: Accum. depreciation–equipment
Intangible assets
Patents ($40,000 – $2,500) ……………………
37,500
Total non-current assets ………………………
EXERCISE 5.17 (Continued)
Equity and Liabilities
Equity
Share capital—ordinary ……………………………………
$180,000
Retained earnings ($44,000 + $55,000 – $25,000) ……..
74,000
Less: Treasury shares ……………………………………..
11,000
Total equity ………………………………………………..
Non-current liabilities
Bonds payable ($100,000 + $50,000) ………………….
150,000
Current liabilities ($150,000 + $13,000) ……………………
Total liabilities …………………………………………….
b
The amount determined for current assets could be computed last and then is a “plug”
figure. That is, total liabilities and equity is computed because information is available
to determine this amount. Because the total assets amount is the same as total
liabilities and equity amount, the amount of total assets can be determined.