CHAPTER 5
SOLUTIONS TO B EXERCISES
E5-1B (15–20 minutes)
(a) Current asset.
(b) Current asset.
(c) If the investment in preferred stock is readily marketable and held with the
intention of converting the stock to cash if the need should arise, then the
account should appear as a current asset and be included with an
(g) Current liability.
(h) 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
(m) Property, plant, and equipment (as a deduction).
(n) Capital stock.
E5-2B (15–20 minutes)
1.
b.
11.
a.
2.
a.
12.
h.
3.
f.
13.
a.
4.
g.
14.
a.
5
f.
15.
d.
6.
b.
16.
f.
7.
h.
17.
8.
a.
18.
c.
9.
a.
19.
g.
10.
c.
20.
E5-3B (15–20 minutes)
1.
f.
10.
d.
2.
a. or e. (preferably a.)
11.
f. or g.
3.
f.
12.
b.
4.
c.
13.
a.
5
x.
14.
h.
6.
f.
15.
f. or g.
7.
c. and n.
16.
f.
8.
a.
17.
a.
19.
h.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 5-3
E5-4B (30–35 minutes)
CLUVER INC.
Balance Sheet
December 31, 20xx
Assets
Current assets
Cash …………………………………………………
$XXX
Less: Cash restricted for plant
Notes receivable ……………………………….
XXX
Receivables—officers ………………………..
XXX
Inventories
Finished goods …………………………...
Work in process …………………………..
Raw materials ………………………………
Total current assets ………………..
Long-term investments
Preferred stock investments ………………
XXX
Land held for future plant site …………….
XXX
Cash restricted for plant expansion ……
Total long-term investments ……
Property, plant, and equipment
Buildings ………………………………………….
XXX
Less: Accum. depreciation—
buildings …………………………..
Intangible assets
Copyrights ………………………………………..
Total assets ………………………………..
expansion …………………………
Accounts receivable ………………………….
Less: Allowance for doubtful
accounts …………………………...
XXX
E5-4B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accrued salaries 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
Discount on bonds payable ……………….
(XXX)
XXX
Total liabilities ……………………………..
XXX
Stockholders’ equity
Capital stock
Common stock …………………………...
XXX
Additional paid-in capital …………………..
Premium on common stock ………….
Total paid-in capital ………………..
Retained earnings …………………………....
retained earnings …………………
Less: Treasury stock, at cost ………
(XXX)
Total shareholders’ equity-Cluver Inc.
Non-controlling interest
Total stockholders’ equity ………
XXX
Note: As assumption made here is that cash included the cash restricted 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 cash
restricted for plant expansion deducted.
E5-5B (30–35 minutes)
DARLING COMPANY
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ………………………………………………..
$105,000
Accounts receivable …………………………
$ 448,000
Inventories, at lower of average
Prepaid expenses …………………………….
Total current assets …………………….
Available-for-sale securities—at fair
Long-term investments
Land held for future use ……………………
251,000
Cash surrender value of life
insurance ………………………………………
26,000
277,000
Property, plant, and equipment
Building …………………………………………..
$1,863,000
Less: Accum. depr.—building ……..
302,000
Office equipment ………………………………
Intangible assets
Patents …………………………..………………..
E5-5B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable …………………………..
$ 367,000
Notes payable (due next month) ………..
75,000
Unearned revenue …………………………..
26,000
Total current liabilities …………………
$ 468,000
Long-term liabilities
Bonds payable ………………………………….
Add: Premium on bonds payable ……….
Pension obligation …………………………..
361,000
Total liabilities …………………………..
Stockholders’ equity
Additional paid-in capital …………………..
*Retained earnings …………………………..
Total stockholders’ equity ……………
907,000
Common stock, $1 par, authorized
1,000,000 shares, issued 610,000
E5-6B (30–35 minutes)
ODIE COMPANY
Balance Sheet
June 30, 2014
Assets
Current assets
Cash ……………………………………………………….
$ 34,000*
Accounts receivable …………………………..
$84,800**
Inventories ………………………………………………….
Total current assets …………………………..
Long-term investments
Bond sinking fund ………………………………………
14,000
Property, plant, and equipment
Equipment ………………………………………………….
Intangible assets
Goodwill……………………………………………………..
E5-6B (Continued)
Liabilities and Stockholders’ Equity
Current liabilities
Notes and accounts payable ……………………….
$ 134,000****
Taxes payable …………………………………………….
21,500
Total current liabilities …………………………..
155,500
Long-term liabilities …………………………………………
Total liabilities ……………………………………….
205,500
E5-7B (15–20 minutes)
Current assets
Cash …………………………………………………………..
$130,500*
Less: Cash restricted for plant expansion ……
(75,000)
$ 55,500
Accounts receivable (of which $75,000 is
Less: Allowance for doubtful accounts ………..
(18,000)
Interest receivable [($60,000 X 12%) X 8/12] ….
Inventories at lower of cost (determined
Finished goods ……………………………………..
Raw materials ………………………………………..
Trading securities at fair value (cost,
Total current assets ………………………….
$766,800
*An acceptable alternative is to report cash at $55,500 and simply report the
cash restricted for plant expansion in the investments section.
E5-8B (10–15 minutes)
1. Bonds payable of $50,000,000 and interest payable of $6,000,000
($200,000,000 X 12% X 3/12) will be reported as a current liability. Bonds
payable of $150,000,000 will be reported as a long-term liability.
E5-9B (30–35 minutes)
(a) COOPER COMPANY
Balance Sheet (partial)
As of December 31, 2014
Current assets
Cash ……………………………………………..
$ 85,990*
Accounts receivable ………………………
$228,250**
Inventories …………………………………….
Prepaid expenses ………………………….
Current liabilities
Accounts payable ………………………….
$287,500a
Notes payable………………………………..
Total current liabilities ………………
$425,000
*
Cash balance ……………………………………………………..
$100,000
195,550
Less: Cash sales in January ($75,000 – $53,750) ….
(21,250)
Cash collected on account ……………………….
(58,310)
Bank loan proceeds ($88,310 – $58,310) …….
(30,000)
Adjusted cash …………………………..………………………..
$ 85,990
**
Accounts receivable balance ………………………………
$222,500
282,000
Deduct: Accounts receivable in January ……………..
Inventories …………………………………………………………
Less: Inventory received on consignment …………..
30,000
[Notes a and b are on the next page.]
E5-9B (Continued)
a
Accounts payable balance ……………………….
$152,500
Add: Cash disbursements ………………………
$97,500
Less: Proceeds of bank loan …………………..
(b)
Adjustment to retained earnings balance:
Add: January sales discounts ………………….
$ 1,190
Deduct: January sales ……………………………..
$75,000
December purchases ………………….
Consignment inventory ………………
Change (decrease) to retained earnings …….
$(143,260)
E5-10B (15–20 minutes)
(a) Although bad debts expense of $150,000 should be debited and the
allowance or doubtful accounts credited for $150,000, 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.
(d) Accrued interest of $2,000 should be reported at December 31, 2014
($300,000 X 8% X 1/12). The $300,000 note payable may also be current,
depending on the maturity date.