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Chapter 5: Question 11Q (page 237)
11. Should available-for-sale securities always be reported as a current asset? Explain.
No, reporting available for sale securities as current assets depends uponthe business entity's expectations to generate cash within the operating period.
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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.
A comparative balance sheet for Shabbona Corporation is presented below.
Particular | December 31 | |
2017 | 2016 | |
Assets | ||
Cash | \(73,000 | \)22,000 |
Accounts receivable | 82,000 | 66,000 |
Inventory | 180,000 | 189,000 |
Land | 71,000 | 110,000 |
Equipment | 260,000 | 200,000 |
Accumulated depreciation – Equipment | (69,000) | (42,000) |
Total | \(597,000 | \)545,000 |
Liabilities and stockholder’s equity | ||
Account payable | \(34,000 | \)47,000 |
Bonds payable | 150,000 | 200,000 |
Common stock (\(1 par) | 214,000 | 164,000 |
Retained earnings | 199,000 | 134,000 |
Total | \)597,000 | \(545,000 |
Additional information:
1. Net income for 2017 was \)125,000. No gains or losses were recorded in 2017.
2. Cash dividends of \(60,000 were declared and paid.
3. Bonds payable amounting to \)50,000 were retired through issuance of common stock.
Instructions
(a) Prepare a statement of cash flows for 2017 for Shabbona Corporation.
(b) Determine Shabbona Corporation’s current cash debt coverage, cash debt coverage, and free cash flow. Comment on its liquidity and financial flexibility.
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?
P5-4 (L03) GROUPWORK (Preparation of a Corrected Balance Sheet) The balance sheet of Kishwaukee Corporation as of December 31, 2017, is as follows.
KISHWAUKEE CORPORATION | |
Balance Sheet | |
December 31, 2017 | |
Assets | |
Goodwill (Note 2) | \(120,000 |
Building (Note 1) | 1,640,000 |
Inventory | 312,100 |
Land | 950,000 |
Accounts receivable | 170,000 |
Treasury Stock (50,000 shares) | 87,000 |
Cash on hand | 175,900 |
Assets allocated to trustee for plant expansion | |
Cash in bank | 70,000 |
Debt investment (held to maturity) | 138,000 |
\)3,663,000 | |
Equities | |
Note payable (Note 3) | \(600,000 |
Common stock authorized and issue, 1,000,000 shares no par | 1,150,000 |
Retained earnings | 103,000 |
Non-controlling Interest | 55,000 |
Appreciation capital (Note 1) | 570,000 |
Income tax payable | 75,000 |
Reserve for depreciation recorded to the date of building | 410,000 |
\)3,663,000 |
Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of appraisal value over cost was \(570,000. Depreciation has been recorded based on cost.
Note 2: Goodwill in the amount of \)120,000 was recognized because the company believed that book value was not an accurate representation of the fair value of the company. The gain of \(120,000 was credited to Retained Earnings.
Note 3: Notes payable are long-term except for the current installment due of \)100,000.
Instructions
Prepare a corrected classified balance sheet in good form. The notes above are for information only
Hawthorn Corporation’s adjusted trial balance contained the following accounts at December 31, 2017: Retained Earnings \(120,000, Common Stock \)750,000, Bonds Payable \(100,000, Paid-in Capital in Excess of Par—Common Stock \)200,000, Goodwill \(55,000, Accumulated Other Comprehensive Loss \)150,000, and Noncontrolling Interest $35,000. Prepare the stockholders’ equity section of the balance sheet.
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