CHAPTER 5
SOLUTIONS TO B PROBLEMS
PROBLEM 5-1B
COMPANY NAME
Balance Sheet
December 31, 20XX
Assets
Current assets
Cash on hand (including petty cash) ………….
$XXX
Cash in bank …………………………………………….
XXX
Debt investments (trading) ………………………..
Accounts receivable …………………………………
XXX
Less: Allowance for doubtful accounts ..
Interest receivable …………………………………….
Advances to employees …………………………….
Inventory (ending) …………………………………….
Prepaid rent ……………………………………………..
Total current assets …………………………….
Long-term investments
Bond sinking fund …………………………………….
Cash surrender value of life insurance ……….
Land for future plant site …………………………..
Total long-term investments …………………
Property, plant, and equipment
Land ………………………………………………………..
Buildings ………………………………………………….
XXX
Less: Accum. depreciation—buildings …..
Equipment ………………………………………………..
Less: Accum. depreciation—equipment ….
Total property, plant, and equipment …….
Intangible assets
Trademarks ………………………………………………
Patents …………………………………………………….
Total intangible assets …………………………
XXX
Total assets ……………………………………………..
$XXX
PROBLEM 5-1B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable ………………………………………….
$XXX
Payroll taxes payable ……………………………….
XXX
Salaries and wages payable ……………………..
XXX
Dividends payable ……………………………………
XXX
Unearned rent revenue ……………………………..
Total current liabilities ………………………..
Long-term debt
Bonds payable …………………………………………
$XXX
Less: Discount on bonds payable ……….
XXX
XXX
Pension obligations …………………………………
Total long-term liabilities …………………….
Total liabilities …………………………………….
Stockholders’ equity
Capital stock
Preferred stock (description) ……………….
XXX
Common stock (description) ……………….
XXX
XXX
Additional paid-in capital
Preferred stock …………………………………..
Total paid-in capital …………………………….
XXX
Retained earnings ……………………………………
retained earnings …………………………….
XXX
Less: Treasury stock ……………………………….
Total stockholders’ equity – Company ….
Non-controlling interest ………………………
Total stockholders’ equity …………………..
PROBLEM 5-2B
ROMA, INC.
Balance Sheet
December 31, 2014
Assets
Current assets
Cash …………………………………………….
$ 61,000
Equity investments (trading) ………….
375,000
Notes receivable …………………………...
160,500
Income taxes receivable ………………..
Inventory ………………………………………
398,600
Prepaid expenses ………………………….
Total current assets …………………
Property, plant, and equipment
Land …………………………………………….
351,000
Buildings ………………………………………
buildings ……………………….
Intangible assets
Goodwill ……………………………………….
210,000
Total assets ……………………………..
$5,029,260
PROBLEM 5-2B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable …………………………..
$ 347,000
Notes payable to banks …………………..
Payroll taxes payable ……………………..
Income tax payable ………………………..
Rent payable ………………………………….
Total current liabilities ………………
Long-term liabilities
Notes payable
(long-term) …………………………………
1,300,000
Bonds payable ……………………………….
payable …………………………...
Rent payable (long-term) ……………….
Total liabilities …………………………..
Stockholders’ equity
Capital stock
5,000 shares issued ………………..
250,000 issued ……………………….
($2,356,260 – $1,500,000) ……………..
($5,029,260 – $2,673,000) …………
Preferred stock, $25 par;
PROBLEM 5-3B
BLACK AND BLUE COMPANY
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ………………………………………………..
$ 26,500
Accounts receivable …………………………
$ 270,600
Inventory (FIFO cost) ………………………..
Prepaid insurance …………………………….
Total current assets …………………….
$ 526,900
Long-term investments
at fair value ……………………………………
Investments in stocks and bonds,
Property, plant, and equipment
Cost of uncompleted plant facilities
Land ……………………………………………
(building) …………………………..…….
Equipment ………………………………………..
Less: Accum. depreciation ………….
Intangible assets
Patents (at cost less amortization)……..
76,000
Total assets …………………………………
$1,248,900
PROBLEM 5-3B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
investments of $131,000 ………………..
Accounts payable …………………………..
Accrued expenses ………………………….
Total current liabilities ………………
Notes payable, secured by
Long-term liabilities
January 1, 2025 …………………………...
Less: Discount on bonds payable …..
Total liabilities …………………………..
6% bonds payable, due
Stockholders’ equity
Common stock
par value; issued and
outstanding, 250,000 shares ……..
par—common stock ……………………
Retained earnings ………………………….
Authorized 500,000 shares of $1
PROBLEM 5-4B
MAPLE CORPORATION
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………….
$134,600
Accounts receivable ………………………..
Inventory …………………………………………
Long-term investments
Assets allocated to trustee for
expansion:
Cash in bank ……………………………………
Debt investments
(held-to-maturity) …………………………..
Property, plant, and equipment
Land ……………………………………………….
687,000
Buildings …………………………………………
buildings ………………………….
1,125,000
Total assets ………………………………..
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable—current installment ……
$125,000
PROBLEM 5-4B (Continued)
Long-term liabilities
Notes payable …………………………………..
675,000b
Total liabilities ………………………………
919,000
Stockholders’ equity
Common stock, no par; 100,000
shares authorized and issued ………….
650,000
Retained earnings ……………………………..
1,076,600c
a$2,260,000 – $425,000 (to eliminate the excess of appraisal value over cost
from the Buildings account. Note that the appreciation capital account is
also deleted).
PROBLEM 5-5B
BARBIE CORPORATION
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………….
$71,000
Trading securities (at fair value) ……….
210,000
Accounts receivable ………………………..
accounts ………………………….
342,000
cost-or-market) …………………………….
Total current assets ……………………
Long-term investments
Investments in common stock
(at fair value) …………………………………
90,000
Bond sinking fund …………………………...
100,000
insurance ……………………………………..
120,000
Land held for future use …………………..
470,000
Property, plant, and equipment
Land ……………………………………………….
500,000
Buildings …………………………………………
1,060,000
buildings ………………………….
600,000
Equipment ……………………………………….
810,000
equipment ………………………..
390,000
1,490,000
Intangible assets
Patent …………………………..…………………
464,000
Goodwill ………………………………………….
200,000
664,000
Total assets ………………………………..
$3,735,000
PROBLEM 5-5B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………..
$ 240,000
Notes payable …………………………………..
160,000
Taxes payable …………………………………..
Unearned revenue …………………………….
Total current liabilities ………………….
Long-term liabilities
Notes payable …………………………………..
240,000
5% bonds payable, due 2022 …………….
Less: Discount on bonds payable …….
Total liabilities ………………………………
Stockholders’ equity
Capital stock
Preferred stock, $100 par value;
100,000 shares authorized,
5,000 issued and outstanding ………..
500,000
200,000 issued and outstanding …….
200,000
Paid-in capital in excess of par—
common stock (200,000 X
[$4.52 – $1.00)] …………………………...
Retained earnings …………………………….
205,000
Total stockholders’ equity …………….
PROBLEM 5-6B
(a) MAROON SIX INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income …………………………………………………..
$21,000
net cash provided by operating activities
Depreciation expense ……………………………..
Increase in account receivable
($61,800 – $56,800) ……………………………….
Net cash provided by operating activities ………
Adjustments to reconcile net income to
Cash flows from investing activities
Sale of investments ………………………………………
20,000
Purchase of land ………………………………………….
(25,000)
Net cash used by investing activities …………….
(5,000)
Cash flows from financing activities
Issuance of common stock…………………………...
43,000
Retirement of notes payable ………………………….
Payment of cash dividends …………………………..
Net cash used by financing activities …………….
Net increase in cash …………………………………………..
15,100
Cash at beginning of year …………………………………..
PROBLEM 5-6B (Continued)
(b) MAROON SIX INC.
Balance Sheet
December 31, 2014
Assets
Liabilities and Stockholders’ Equity
Cash
$46,100
Accounts payable
$61,000
Plant assets (net)
(2)
Common stock
243,000
(6)
(1) $86,000 – ($20,000 + $2,100)
(2) $138,500 – $9,000
(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,
PROBLEM 5-6B (Continued)
An analysis of Maroon Six free cash flow indicates it is negative as shown
below:
Free Cash Flow Analysis
Net cash provided by operating activities …………………………
$ 27,100
Less: Purchase of land ………………………………………………….
25,000
Dividends …………………………………………………………….
PROBLEM 5-7B
(a) FICUS INC.
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ……………………………………………………
$46,000
net cash provided by operating activities
Depreciation expense ……………………………….
($72,000 – $61,000) ……………………………..
Increase in accounts receivable
($84,000 – $56,800) ……………………………..
Net cash provided by operating activities ……….
Adjustments to reconcile net income to
Cash flows from investing activities
Sale of investments ……………………………………….
101,000
Purchase of land ……………………………………………
(61,000)
Net cash used by investing activities ……………..
40,000
Cash flows from financing activities
Issuance of common stock …………………………....
Payment of cash dividends …………………………...
Net cash used by financing activities ……………..
Net increase in cash ……………………………………………
Cash at beginning of year ……………………………………
PROBLEM 5-7B (Continued)
(b) FICUS INC.
Balance Sheet
December 31, 2014
Assets
Liabilities and Stockholders’ Equity
Cash
$ 68,000
Accounts payable
$ 72,000
Common stock
(4)
(1)
Retained earnings
(5)
(1) $138,500 – $8,000
(2) $66,000 + $61,000 + $195,000
(c) An analysis of Ficus’s free cash flow indicates it is negative as shown
below:
Free Cash Flow Analysis
PROBLEM 5-7B (Continued)
Its current cash debt coverage is 0.3 to 1 ($22,800 ÷ $66,500*). Overall, it
appears that its liquidity position is below average and overall financial
flexibility should be improved.
(d) This type of information is useful for assessing the amount, timing,
and uncertainty of future cash flows. For example, by showing the