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Chapter 5: Question 10Q (page 237)
In its December 31, 2017, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?
The business entity must report the amount of both notes and accounts receivables separately.
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(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.
BE5-7 (L03) Thomas Corporation’s adjusted trial balance contained the following liability accounts at December 31, 2017: Bonds Payable (due in 3 years) \(100,000, Accounts Payable \)72,000, Notes Payable (due in 90 days) \(22,500, Salaries and Wages Payable \)4,000, and Income Taxes Payable $7,000. Prepare the current liabilities section of the balance sheet.
Early in January 2018, Hopkins Company is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2017.
Debit \( | Credit \) | |
Cash | \(75,000 | |
Accounts receivable (net) | 38,500 | |
Inventory (net) | 65,300 | |
Equipment (net) | 84,000 | |
Patent | 15,000 | |
Notes and Accounts payable | \)52,000 | |
Note payable (due 2019) | 75,000 | |
Common stock | 100,000 | |
Retained earnings | 50,800 | |
\(277,800 | \)277,800 |
Except for the following items, Hopkins has recorded all adjustments in its accounts.
1. Cash includes \(500 petty cash and \)15,000 in a bond sinking fund.
2. Net accounts receivable is comprised of \(52,000 in accounts receivable and \)13,500 in allowance for doubtful accounts.
3. Equipment had a cost of \(112,000 and accumulated depreciation of \)28,000.
4. On January 8, 2018, one of Hopkins’ customers declared bankruptcy. At December 31, 2017, this customer owed Hopkins \(9,000.
Accounting
Prepare a corrected December 31, 2017, balance sheet for Hopkins Company.
Analysis
Hopkins’ bank is considering granting an additional loan in the amount of \)45,000, which will be due December 31, 2018. How can the information in the balance sheet provide useful information to the bank about Hopkins’ ability to repay the loan?
Principles
In the upcoming meeting with the bank, Hopkins plans to provide additional information about the fair value of its equipment and some internally generated intangible assets related to its customer lists. This information indicates that Hopkins has significant unrealized gains on these assets, which are not reflected on the balance sheet. What objections is the bank likely to raise about the usefulness of this information in evaluating Hopkins for the loan renewal?
Perez Company reported an increase in inventories in the past year. Discuss the effect of this change on the current ratio (current assets ÷ current liabilities). What does this tell a statement user about Perez Company’s liquidity?
A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?
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