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Chapter 5: Q3CA. (page 252)

(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

Short Answer

Expert verified

Items not represented correctly:

1. Cash surrender value of life insurance.

2. Stock investment in a subsidiary company.

3. Treasury stock.

4. Unamortized premium on bonds payable.

5. Earned surplus.

6. Cash dividend declared.

Step by step solution

01

Definition of Unamortized Premium

Unamortized premium refers to the amount ofdifference between the book value of the bonds reported and the face value of the bonds. Such premium is amortized using the two methods; straight line and effective interest rate.

02

Correct Balance Sheet

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

Cash Surrender value of life insurance

19,000

Supplies

4,000

Total current assets

112,000

Long term Investment

Investment in subsidiary company

20,000

Property, Plant, and Equipment

Building and land

$91,000

Less: Accumulated depreciation

(31,000)

60,000

Total assets

$192,000

Liabilities and Stockholder’s equity

Accounts payable

$22,000

Dividend payable

8,000

Unearned revenue

1

Long term liabilities

Reserve for income tax

15,000

Bonds payable

$60,000

Add: Unamortized premium on bonds payable

2,000

62,000

Total liabilities

107,001

Common stock

Common stock at par $5

85,000

Reserves and surplus

Retained earnings

24,999

Less: treasury stock

(25,000)

(1)

Total liabilities and Stockholder’s equity

$192,000

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Most popular questions from this chapter

Question: P5-1 (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.)

(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.

EASTWOOD COMPANY

Adjusted Trial Balance

December 31, 2017

Debit

Credit

Cash

\(41,000

Accounts receivables

163,500

Allowance for doubtful account

\)8,700

Prepaid Insurance

5,900

Inventory

208,500

Equity Investment (long-term)

339,000

Land

85,000

Construction in the process (building)

124,000

Patent

36,000

Equipment

400,000

Accumulated depreciation – Equipment

240,000

Discount on bonds payable

20,000

Account payable

148,000

Accrued liabilities

49,200

Notes payable

94,000

Bond payable

200,000

Common stock

500,000

Paid-in-capital in Excess of par – Common stock

45,000

Retained earnings

138,000

Total

\(1,422,900

\)1,422,900

Additional information:

1. The LIFO method of inventory value is used.

2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.

3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs \(85,000, as shown in the trial balance.

4. The patents were purchased by the company at a cost of \)40,000 and are being amortized on a straight-line basis.

5. Of the discount on bonds payable, \(2,000 will be amortized in 2018.

6. The notes payable represent bank loans that are secured by long-term investments carried at \)120,000. These bank loans are due in 2018.

7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.

8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions

Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.

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?

(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.)

E5-10 (L02,3) (Current Liabilities) Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year.

(a) On December 20, 2017, a former employee filed a legal action against Baylor for \(100,000 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.

(b) Bonuses to key employees based on net income for 2017 are estimated to be \)150,000.

(c) On December 1, 2017, the company borrowed \(600,000 at 8% per year. Interest is paid quarterly.

(d) Accounts receivable at December 31, 2017, is \)10,000,000. An aging analysis indicates that Baylor’s expense provision for doubtful accounts is estimated to be 3% of the receivables balance.

(e) On December 15, 2017, the company declared a \(2.00 per share dividend on the 40,000 shares of common stock outstanding, to be paid on January 5, 2018.

(f) During the year, customer advances of \)160,000 were received; $50,000 of this amount was earned by December 31, 2017.

Instructions For each item above, indicate the dollar amount to be reported as a current liability. If a liability is not reported, explain why.
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