EXERCISE 5-4 (30–35 minutes)
Denis Savard Inc.
Balance Sheet
December 31, 20–
Assets
Current assets
Cash ……………………………………………………
$XXX
Less: Cash restricted for plant
expansion …………………………………….
XXX
$XXX
Accounts receivable …………………………….
XXX
Less: Allowance for doubtful
accounts ………………………………………
XXX
XXX
Notes receivable …………………………………..
XXX
Receivables—officers …………………………..
XXX
Inventories
Finished goods ……………………………….
XXX
Work in process ……………………………..
XXX
Raw materials …………………………………
XXX
Total current assets……………………
$XXX
Long-term investments
Preferred stock investments …………………
XXX
Land held for future plant site ……………….
XXX
Restricted cash (plant expansion) …………
Total long-term investments ……….
XXX
Property, plant, and equipment
Buildings ……………………………………………..
XXX
Less: Accum. depreciation—
buildings ……………………………………..
XXX
XXX
Intangible assets
Copyrights …………………………………………..
XXX
EXERCISE 5-4 (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Salaries and wages payable ………………………..
$XXX
Notes payable, short-term …………………………..
XXX
Unearned subscriptions revenue …………………
XXX
Unearned rent revenue ………………………………..
Total current liabilities …………………………..
Long-term debt
Bonds payable, due in four years ………………..
$XXX
Less: Discount on bonds payable ………………..
Total liabilities ……………………………………….
Stockholders’ equity
Capital stock:
Common stock ………………………………………
XXX
Additional paid-in capital:
Paid-in capital in excess of par
(common stock) …………………………………..
XXX
Total paid-in capital ………………………….
XXX
Retained earnings ………………………………………
retained earnings …………………………..
XXX
Less: Treasury stock, at cost ………………..
Equity attributable to Denis Savard, Inc. ………
Equity attributed to noncontrolling interest ….
Total stockholders’ equity ………………..
Note to instructor: An assumption made here is that cash included the
restricted cash for plant expansion. If it did not, then a subtraction from
cash would not be necessary or the cash balance would be “grossed up”
and then the restricted cash for plant expansion deducted.
EXERCISE 5-5 (30–35 minutes)
Uhura Company
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ………………………………………………..
$230,000
Equity investments (trading) ……………..
120,000
Accounts receivable …………………………
$357,000
accounts …………………………………..
17,000
340,000
cost-or-market ……………………………….
401,000
Prepaid expenses ……………………………..
Total current assets …………………….
$1,103,000
Long-term investments
Land held for future use ……………………
175,000
insurance …………………………..………….
90,000
Property, plant, and equipment
Buildings ………………………………………….
$730,000
Less: Accum. depr.—buildings …….
570,000
Equipment ………………………………………..
Less: Accum. depr.—equipment …..
Intangible assets
Goodwill …………………………………………..
80,000
Total assets ………………………………..
$2,178,000
EXERCISE 5-5 (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………..
$ 135,000
Notes payable (due next year) ……………
Rent payable …………………………..………..
49,000
Total current liabilities …………………
Long-term liabilities
Bonds payable ………………………………….
$500,000
Add: Premium on bonds payable ……….
53,000
$ 553,000
Pension obligation …………………………..
Total liabilities ……………………………..
Stockholders’ equity
Additional paid-in capital …………………..
Retained earnings …………………………….
Total stockholders’ equity ……………
Common stock, $1 par, authorized
400,000 shares, issued 290,000
EXERCISE 5-6 (30–35 minutes)
Geronimo Company
Balance Sheet
July 31, 2014
Assets
Current assets
Cash ……………………………………………………….
$60,000*
Accounts receivable …………………………..
Inventory …………………………..……………………….
Total current assets …………………………..
Long-term investments
Bond sinking fund ………………………………………
15,000
Property, plant, and equipment
Equipment ………………………………………………….
equipment …………………………..
84,000
Intangible assets
Patents ………………………………………………………
21,000
($69,000 – $15,000 + $6,000)
***
($60,000 + $5,300)
EXERCISE 5-6 (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Notes and accounts payable ……………………….
$ 44,000
Income taxes payable………………………………….
6,000
Total current liabilities …………………………..
Long-term liabilities …………………………………………
75,000
Total liabilities ……………………………………….
125,000
EXERCISE 5-7 (15–20 minutes)
Current assets
Cash …………………………………………………………..
$ 87,000*
Less: Restricted cash (plant expansion) ……….
50,000
$ 37,000
Trading securities at fair value (cost,
$31,000) ……………………………………………………
29,000
Accounts receivable (of which $50,000 is
pledged as collateral on a bank loan) …………
Less: Allowance for doubtful accounts …………
12,000
Interest receivable [($40,000 X 6%) X 8/12] …….
Inventories at lower of cost (determined
using LIFO) or market
Finished goods ………………………………………
Work in process …………………………………….
Raw materials …………………………..……………
207,000
*An acceptable alternative is to report cash at $37,000 and simply report
the restricted cash (plant expansion) in the investments section.
EXERCISE 5-8 (10–15 minutes)
1. Dividends payable of $2,375,000 will be reported as a current liability
[(1,000,000 – 50,000) X $2.50].
2. Bonds payable of $25,000,000 and interest payable of $3,000,000
EXERCISE 5-9 (30–35 minutes)
(a) Allessandro Scarlatti Company
Balance Sheet (Partial)
December 31, 2014
Current assets
Cash ………………………………………………….
$ 34,396*
Accounts receivable …………………………..
Inventory ……………………………………………
Prepaid expenses ……………………………….
*
Cash balance
$ 40,000
Add: Cash disbursement after discount
($39,000 X 98%)
38,220
Less: Cash sales in January ($30,000 – $21,500)
Cash collected on account
Bank loan proceeds ($35,324 – $23,324)
(12,000)
**
Accounts receivable balance
$ 89,000
Add: Accounts reduced from January collection
($23,324 ÷ 98%)
23,800
***
Inventory
$171,000
Less: Inventory received on consignment
12,000
Adjusted inventory
$159,000
EXERCISE 5-9 (Continued)
Current liabilities
Accounts payable ………………………………………
$115,000a
Notes payable ……………………………………………
Total current liabilities …………………………..
a
Accounts payable balance
$ 61,000
Add: Cash disbursements
$39,000
Adjusted accounts payable
$115,000
b
Notes payable balance
$ 67,000
Less: Proceeds of bank loan
12,000
Adjusted notes payable
$ 55,000
(b)
Adjustment to retained earnings balance:
Add: January sales discounts
[($23,324 ÷ 98%) X .02] ………………………
$ 476
Deduct: January sales ………………………………….
January purchase discounts
($39,000 X 2%) ………………………………
December purchases ………………………
Consignment inventory ……………………
Change (decrease) to retained earnings …………
$(57,304)
EXERCISE 5-10 (15–20 minutes)
(a) In order for a liability to be reported for threatened litigation, the
amount must be probable and payment reasonably estimable. Since
these conditions are not met an accrual is not required.
(d) Although Bad Debt 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.
EXERCISE 5-11 (25–30 minutes)
Kelly Corporation
Balance Sheet
December 31, 2014
Assets
Current assets
Cash …………………………………………………………….
$ 6,850
Supplies ……………………………………………………….
Prepaid insurance …………………………………………
1,000
Total current assets …………………………………
$ 9,050
Equipment ………………………………………………………….
Less: Accumulated depreciation—equipment ………
4,000
Trademark ……………………………………………………….…
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ………………………………………….
$10,000
Salaries and wages payable …………………………..
500
Unearned service revenue ……………………………..
2,000
Total current liabilities …………………………..
$12,500
Long-term liabilities
Bonds payable ………………………………………………
9,000
Total liabilities……………………………………………….
Common stock ………………………………………………
Retained earnings ($25,000 – $2,500*) …………….
Total stockholders’ equity ………………………..
EXERCISE 5-12 (30–35 minutes)
Scott Butler Corporation
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………….
$197,000
Debt investments (Trading) ………………
153,000
Accounts receivable ………………………..
Inventory …………………………..…………….
Total current assets …………………..
Long-term investments
Debt investments …………………………….
299,000
Equity investments ………………………….
277,000
Total long-term investments ………
576,000
Property, plant, and equipment
Land ……………………………………………….
260,000
Buildings …………………………………………
1,040,000
building ………………………………….
888,000
Equipment ………………………………………
equipment ………………………………
540,000
Intangible assets
Franchises ……………………………………………..
160,000
Patents ……………………………………………
195,000
Total intangible assets ………………..
355,000
Total assets ………………………………..
$3,976,000
EXERCISE 5-12 (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable …………………………
$ 455,000
Notes payable (short-term) ……………
Dividends payable ………………………..
136,000
Accrued liabilities …………………………
96,000
Total current liabilities …………..
Long-term debt
Notes payable (long-term) …………….
900,000
Bonds payable ……………………………..
Total long-term liabilities ………….
Total liabilities …………………………
Stockholder’s equity
Paid-in capital
Common stock ($5 par) ……………
$1,000,000
Additional paid-in capital …………
80,000
1,080,000
Retained earnings* ……………………….
retained earnings ………………..
Less: Treasury stock …………………….
Total stockholders’ equity ……..
EXERCISE 5-12 (Continued)
*Computation of Retained Earnings:
Sales revenue
$8,100,000
Investment revenue
63,000
Extraordinary gain
80,000
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense
(211,000)
Net income
$ 332,000
Beginning retained earnings
$ 78,000
Net income
332,000
Ending retained earnings
$410,000
Or ending retained earnings can be computed as follows:
Add: Treasury stock
Less: Paid-in capital in excess of par
Ending retained earnings
$ 410,000
Note to instructor: There is no dividends account. Thus, the 12/31/14 retained
earnings 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.
(e)
1.
(j)
4.
EXERCISE 5-14 (25–35 minutes)
Constantine Cavamanlis Inc.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………………
$44,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ……………………………….
$ 6,000
Increase in accounts receivable ………………..
Increase in accounts payable ……………………
5,000
8,000
Net cash provided by operating activities ……….
Cash flows from investing activities
Purchase of equipment ………………………………….
Cash flows from financing activities
Payment of cash dividends …………………………..
Net cash used by financing activities ……………..
Net increase in cash ……………………………………………
Cash at beginning of year ……………………………………
EXERCISE 5-15 (25–35 minutes)
(a) Zubin Mehta Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………..…………………………
$160,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ………………………………..
Loss on sale of investments ……………………….
Decrease in accounts receivable ………………..
Decrease in current liabilities ……………………..
15,000
Net cash provided by operating activities …………
175,000
Cash flows from investing activities
Sale of investments …………………………………………
12,000
Purchase of equipment ……………………………………
Net cash used by investing activities ……………….
Cash flows from financing activities
Payment of cash dividends …………………………..
Net increase in cash ……………………………………………..
Cash at beginning of year ……………………………………..
78,000
(b) Free Cash Flow Analysis
Net cash provided by operating activities ………………
$175,000
Less: Purchase of equipment ………………………………
(58,000)
Dividends …………………………………………………..
(30,000)
Free cash flow ……………………………………………………..
$ 87,000
EXERCISE 5-16 (20–25 minutes)
(a) Shabbona Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………………..
$125,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense …………………………………
Increase in accounts receivable ………………….
Decrease in inventory ………………………………..
Decrease in accounts payable …………………….
7,000
Net cash provided by operating activities …………
Cash flows from investing activities
Sale of land …………………………………………………….
39,000
Net cash used by investing activities ……………….
Cash flows from financing activities
Payment of cash dividends ……………………………..
Net increase in cash ……………………………………………..
Cash at beginning of year ……………………………………..
EXERCISE 5-16 (Continued)
(b) Current cash debt coverage =
.61 to 1
Free Cash Flow Analysis
Net cash provided by operating activities ……………………..
$132,000
Less: Purchase of equipment ……………………………………..
(60,000)
Dividends ………………………………………………………….
(60,000)
EXERCISE 5-17 (30–35 minutes)
(a) Grant Wood Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………………….
$55,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of equipment …………………………..
$ 2,000*
Depreciation expense …………………………………..
Patent amortization …………………………..…………
Increase in current assets (other than cash) ……..
1,500
Increase in current liabilities ………………………..
Net cash provided by operating activities …………..
Cash flows from investing activities
Sale of equipment ……………………………………………..
10,000
Addition to building …………………………………………..
(27,000)
Investment in stock …………………………………………..
(16,000)
Net cash used by investing activities …………………
(33,000)
Cash flows from financing activities
Issuance of bonds …………………………………………….
50,000
Payment of dividends ………………………………………..
(30,000)
Purchase of treasury stock ………………………………..
(11,000)
Net cash provided by financing activities……………
*[$10,000 – ($20,000 – $8,000)]
aAn additional proof to arrive at the increase in cash is provided as follows:
Total current assets—end of period
$296,500
[from part (b)]
Total current assets—beginning of period
Increase in current assets during the period
Increase in current assets other than cash
29,000