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Chapter 2: Q15BP (page 51)

Arrange the following items in proper balance sheet presentation:

Accumulated depreciation

\(309,000

Retained earnings

187,000

Cash

14,000

Bonds payable

136,000

Accounts receivable

54,000

Plant and equipment – original cost

775,000

Accounts payable

35,000

Allowance for bad debts

9,000

Common stock, \)1 par, 100,000 share outstanding

100,000

Inventory

70,000

Preferred stock, $59 par, 1,000 share outstanding

59,000

Marketable securities

24,000

Investments

20,000

Notes payable

34,000

Capital paid in excess of par (common stock)

88,000

Short Answer

Expert verified

Common stock, preferred, capital paid in excess of par, and retained earnings are considered the equity and shown as the shareholder funds. The accounts payable, bonds payable, and notes payable are treated as liability and classified as a current liability. The cash, account receivable, inventory, and marketable securities are treated as the current assets, and the plant and machinery are considered the fixed asset of the company.

Step by step solution

01

Retained earnings

Retained earnings refer to the portion of the net income of a company that is held and saved by an organization for future investment and further growth opportunities.

02

Presentation of the balance sheet

Particulars

Amount ($)

Equity and liabilities

Shareholder’s funds:

  • Share capital

Common stock ($100,000+$88,000)

Preferred stock

188,000

59,000

  • Reserve and surplus (retained earnings)

187,000

Non-current liabilities

  • Bonds payable

136,000

Current liabilities

  • Accounts payable

35,000

  • Notes payable

34,000

Total

639,000

Assets:

Non-current assets:

  • Fixed assets $775,000

Less: Depreciation $309,000

466,000

  • Investments

20,000

Current assets:

  • Current investment (marketable securities)

24,000

  • Inventories

70,000

  • Accounts receivable $54,000

Less: allowance for bad debts $9,000

45,000

  • Cash and cash equivalent

14,000

Total

639,000

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Most popular questions from this chapter

Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows:

Sales\( 2790000
Cost of goods sold1790000
Gross Profits\)1000000
Selling and administrative expenses302000
Operating profits\(698000
Interest Expense54800
Income before taxes\)643200
Taxes30%192960
Income after-tax$ 450240

Compute the profit margin for 20X1.

Given the following information, prepare an income statement for the Dental Drilling Company.

Selling and administrative expenses

$112,000

Depreciation expenses

73,000

Sales

489,000

Interest expenses

45,000

Cost of goods sold

156,000

Taxes

47,000

The Haines Corp. shows the following financial data for 20X1 and 20X2:

20X1

20X2

Sales

\(3,230,000

\)3,370,000

Cost of goods sold

2,130,000

2,850,000

Gross profits

\(1,100,000

\)520,000

Selling and administrative expenses

298,000

227,000

Operating profits

\(802,000

\)293,000

Interest expense

47,200

51,600

Income before taxes

\(754,800

\)241,400

Taxes (35%)

264,180

84,490

Income after tax

\(490,620

\)156,910

For each year, compute the following and indicate whether it is increasing or

decreasing profitability in 20X2 as indicated by the ratio:

c. Interest expenses to sales

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:

Current assets

Liabilities

Cash

\(15,000

Accounts payable

\)17,000

Accounts receivable

20,000

Notes payable

25,000

Inventory

30,000

Bonds payable

55,000

Prepaid expenses

12,500

Fixed assets

Stockholder’s equity

Plant and equipment (gross)

Less: accumulated depreciation

\(255,000

51,000

Preferred stock

\)25,000

Net plant and equipment

\(204,000

Common stock

60,000

Paid in capital

30,000

Retained earnings

69,500

Total assets

\)281,500

Total liabilities and stockholder’s equity

\(281,500

Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.

\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 20X2, the cash balance and prepaid expenses balances were

unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.

b. Prepare a statement of retained earnings for 20X2.

Dr. Zhivàgo Diagnostics Corp.’s income statement for 20X1 is as follows

Sales\( 2790000
Cost of goods sold1790000
Gross profits\) 1000000
Selling and administrative expenses302000
Operating profits\( 698000
Interest Expense54800
Income before tax\) 643200
Taxes 30%192960
Income after tax$ 450240

b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
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