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Chapter 5: 12Q (page 237)
What is the relationship between current assets and current liabilities?
Current liabilities are liquidated using thecurrent assets as they both get due or provide benefit within one year.
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What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?
(L02,3) (Balance Sheet Classifications) Presented below are a number of balance sheet accounts of Deep Blue Something, Inc.
(a) Debt Investments. | (h)Interest Payable. |
(b) Treasury Stock. | (i) Deficit. |
(c) Common Stock. | (j) Equity Investments(ownership stake of less than 20%). |
(d) Dividends Payable. | (k) Income Taxes Payable. |
(e) Accumulated Depreciation—Equipment. | (l) Unearned Subscriptionsrevenue. |
(f) Construction in Process. | (m) Work in Process. |
(g) Petty Cash. | (n) Salaries and WagesPayable. |
Instructions For each of the accounts above, indicate the proper balance sheet classification. In the case of borderline items, indicate the additional information that would be required to determine the proper classification.
What is meant by solvency? What information in the balance sheet can be used to assess a company’s solvency?
IFRS5-3 Briefly describe the convergence efforts related to financial statement presentation.
Case 1: Uniroyal Technology Corporation
Uniroyal Technology Corporation (UTC), with corporate offices in Sarasota, Florida, is organized into three operating segments. The high-performance plastics segment is responsible for research, development, and manufacture of a wide variety of products, including orthopedic braces, graffiti-resistant seats for buses and airplanes, and a static-resistant plastic used in the central processing units of microcomputers. The coated fabrics segment manufactures products such as automobile seating, door and instrument panels, and specialty items such as waterproof seats for personal watercraft and stain-resistant, easy-cleaning upholstery fabrics. The foams and adhesives segment develops and manufactures products used in commercial roofing applications.
The following items relate to operations in a recent year.
1. Serious pressure was placed on profitability by sharply increasing raw material prices. Some raw materials increased in price 50% during the past year. Cost containment programs were instituted and product prices were increased whenever possible, which resulted in profit margins actually improving over the course of the year.
2. The company entered into a revolving credit agreement, under which UTC may borrow the lesser of \(15,000,000 or 80% of eligible accounts receivable. At the end of the year, approximately \)4,000,000 was outstanding under this agreement. The company plans to use this line of credit in the upcoming year to finance operations and expansion.
Instructions
(a) Should investors be informed of raw materials price increase, such as described in item 1? Does the fact that the company successfully met the challenge of higher prices affect the answer? Explain.
(b) How should the information in item 2 be presented in the financial statements of UTC?
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