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Chapter 5: Q30Q. (page 238)
What is a “Summary of Significant Accounting Policies”?
The rules and regulations used for reporting accounting information are reflected in the summary of significant accounting policies.
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(Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).
SAMEED BROTHERS CORPORATION | ||
BALANCE SHEET | ||
DECEMBER 31, 2017 | ||
Assets | ||
Current assets | ||
Cash | \(26,000 | |
Marketable securities | 18,000 | |
Accounts receivables | 25,000 | |
Inventory | 20,000 | |
Supplies | 4,000 | |
Stock investment in subsidiary company | 20,000 | \)113,000 |
Investment | ||
Treasury stock | 25,000 | |
Property, Plant and Equipment | ||
Building and land | 91,000 | |
Less: Reserve for depreciation | (31,000) | 60,000 |
Other assets | ||
Cash Surrender value of life insurance | 19,000 | |
Total assets | \(217,000 | |
Liabilities and Stockholder’s equity | ||
Accounts payable | \)22,000 | |
Reserve for income taxes | 15,000 | |
Customer’s account with credit balance | 1 | \(37,001 |
Deferred credit | ||
Unamortized premium on bonds payable | 2,000 | |
Long term liabilities | ||
Bonds payable | 60,000 | |
Total liabilities | 99,001 | |
Common stock | ||
Common stock at par \)5 | 85,000 | |
Earned surplus | 24,999 | |
Cash Dividend declared | 8,000 | 117,999 |
Total liabilities and Stockholder’s equity | $217,000 |
Instructions
Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized
(L03) (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.
Accounts Receivable-Inventory-Ending
Accumulated Depreciation—Buildings-Land
Accumulated Depreciation—Equipment Land for Future Plant Site
Accumulated Other Comprehensive Income - Loss from Flood
Advances to Employees- Noncontrolling Interest
Advertising Expense - Notes Payable (due next year)
Allowance for Doubtful Accounts - Paid-in Capital in Excess of Par— preferred stock
Bond Sinking Fund -Patents
Bonds Payable - Payroll Taxes Payable
Buildings - Pension Liability
Cash (in bank) - Petty Cash
Cash (on hand) - Preferred Stock
Cash Surrender Value of Life Insurance -Premium on Bonds Payable
Commission Expense- Prepaid Rent
Common Stock- Purchase Returns and Allowances
Copyrights - Purchases
Debt Investments (trading)- Retained Earnings
Dividends Payable- Salaries and Wages Expense (sales)
Equipment - Salaries and Wages Payable
Freight-In Sales- Discounts
Gain on Disposal of Equipment- Sales Revenue
Interest Receivable - Treasury Stock (at cost)
Inventory—Beginning Unearned Subscriptions Revenue
Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)
Refer to the definition of assets on page 204. Discuss how a leased building might qualify as an asset of the lessee (tenant) under this definition.
Lansbury Inc. had the following balance sheet on December 31, 2016.
LANSBURY INC. | |||
BALANCE SHEET | |||
DECEMBER 31, 2016 | |||
Cash | \(20,000 | Account payable | \)30,000 |
Accounts receivables | 21,200 | Note payable | 41,000 |
Investment | 32,000 | Common stock | 100,000 |
Plant assets (net) | 81,000 | Retained earnings | 23,200 |
Land | 40,000 | ||
\(194,200 | \)194,200 |
During 2017, the following occurred.
1. Lansbury Inc. sold part of its debt investment portfolio for \(15,000. This transaction resulted in a gain of \)3,400 for the firm. The company classifies these investments as available for sale.
2. A tract of land was purchased for \(13,000 cash.
3. Long-term notes payable in the amount of \)16,000 were retired before maturity by paying \(16,000 cash.
4. An additional \)20,000 in common stock was issued at par.
5. Dividends of \(8,200 were declared and paid to stockholders.
6. Net income for 2017 was \)32,000 after allowing for depreciation of \(11,000.
7. Land was purchased through the issuance of \)35,000 in bonds.
8. At December 31, 2017, Cash was \(37,000, Accounts Receivable was \)41,600, and Accounts Payable remained at $30,000.
Instructions
(a) Prepare a statement of cash flows for 2017.
(b) Prepare an unclassified balance sheet as it would appear at December 31, 2017.
(c) How might the statement of cash flows help the user of the financial statements? Compute two cash flow ratios.
Net income for the year for Tanizaki, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. Tanizaki also reported capital expenditures of \(75,000 and paid dividends in the amount of \)30,000. Compute Tanizaki’s free cash flow
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