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Chapter 5: 4 (page 237)
Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.
Two estimates that will affect the usefulness of the balance sheet information are:
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(Identifying Balance Sheet Deficiencies) The assets of Fonzarelli Corporation are presented below (000s omitted).
FONZARELLI CORPORATION | ||
BALANCE SHEET (PARTIAL) | ||
DECEMBER 31, 2018 | ||
Assets | ||
Cash | \(100,000 | |
Unclaimed payroll check | 27,500 | |
Debt investment (trading) (fair value \)30,000) at cost | 37,000 | |
Accounts receivables (less bad debt reserves) | 75,000 | |
Inventory—at lower-of-cost (determined by the next-in, first-out method) or net realizable value | 240,000 | |
Total current assets | 479,500 | |
Tangible assets | ||
Land (less accumulated depreciation) | 80,000 | |
Building and equipment | \(800,000 | |
Less: Accumulated depreciation | (250,000) | 550,000 |
Net tangible assets | 630,000 | |
Long-term investment | ||
Stock and bonds | 100,000 | |
Treasury stock | 70,000 | |
Total long-term investment | 170,000 | |
Other assets | ||
Discount on bonds payable | 19,400 | |
Sinking funds | 975,000 | |
Total other assets | 994,400 | |
Total assets | \)2,273,900 |
Instructions
Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets.
Differentiate between operating activities, investing activities, and financing activities.
What is a “Summary of Significant Accounting Policies”?
Grant Wood Corporation’s balance sheet at the end of 2016 included the following items.
Current assets (\(Cash 82,000) | \)235,000 | Current liabilities | \(150,000 |
Land | 30,000 | Bond payable | 100,000 |
Building | 120,000 | Common stock | 180,000 |
Equipment | 90,000 | Retained earnings | 44,000 |
Accumulated depreciation – Building | (30,000) | ||
Accumulated depreciation – Equipment | (11,000) | ||
Patents | 40,000 | ||
Total | \)474,000 | Total | \(474,000 |
The following information is available for 2017.
1. Net income was \)55,000.
2. Equipment (cost \(20,000 and accumulated depreciation \)8,000) was sold for \(10,000.
3. Depreciation expense was \)4,000 on the building and \(9,000 on equipment.
4. Patent amortization was \)2,500.
5. Current assets other than cash increased by \(29,000. Current liabilities increased by \)13,000.
6. An addition to the building was completed at a cost of \(27,000.
7. A long-term investment in stock was purchased for \)16,000.
8. Bonds payable of \(50,000 were issued.
9. Cash dividends of \)30,000 were declared and paid.
10. Treasury stock was purchased at a cost of $11,000.
Instructions
(Show only totals for current assets and current liabilities.)
(a) Prepare a statement of cash flows for 2017.
(b) Prepare a balance sheet at December 31, 2017.
(Preparation of a Corrected Balance Sheet) Uhura Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.
UHURA Company | |
Balance Sheet | |
For the year ended 2017 | |
Current assets | |
Cash | \(230,000 |
Accounts receivables (Net) | 340,000 |
Inventory (Lower of average cost or market) | 401,000 |
Equity investment (Trading) | 140,000 |
Property, Plant and Equipment | |
Building (net) | 570,000 |
Equipment (net) | 160,000 |
Land held for future use | 175,000 |
Intangible assets | |
Goodwill | 80,000 |
Cash surrender value of life insurance | 90,000 |
Prepaid expenses | 12,000 |
Current liabilities | |
Account payable | 135,000 |
Note payable | 125,000 |
Pension obligation | 82,000 |
Rent payable | 49,000 |
Premium on bond payable | 53,000 |
Long-term Liabilities | |
Bond payable | 500,000 |
Stockholders equity | |
Common stock \)1 par, authorized 400,000 shares, issued 290,000 | 290,000 |
Additional paid in capital | 160,000 |
Retained earnings |
Instructions
Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is \(160,000 and for the equipment, \)105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability.
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