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5.22. PROBLEMS

P5-1 (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.

Accounts Receivable

Accrued Wages

Accumulated Depreciation—Buildings

Accumulated Depreciation—Equipment

Advances to Employees

Advertising Expense

Allowance for Doubtful Accounts

Bond Sinking Fund

Bonds Payable

Building

Cash in Bank

Cash on Hand

Cash Surrender Value of Life Insurance

Commission Expense

Common Stock

Copyright

Dividends Payable

Equipment

Gain on Sale of Equipment

Interest Receivable

Inventory—Beginning

Inventory—Ending

Land

Land for Future Plant Site

Loss from Flood

Notes Payable (due next year)

Patent

Payroll Taxes Payable

Pension Obligations

Petty Cash

Preferred Stock

Premium on Bonds Payable

Paid-in Capital in Excess of Par—Preferred Stock

Prepaid Rent

Purchases

Purchase Returns and Allowances

Retained Earnings

Sales

Sales Discounts

Sales Salaries

Trading Securities

Transportation-in

Treasury Stock (at cost)

Unearned Subscriptions Revenue

Instructions

Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)

P5-2 (Balance Sheet Preparation) Presented below are a number of balance sheet items for Montoya, Inc., for the current year, 2010.



Instructions

Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of trading securities are the same.

P5-3 (Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2010 are presented on the next page.



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 and bonds is the same.

  3. The amount of the Construction Work 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 cost $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 unamortized discount on bonds payable, $2,000 will be amortized in 2011.

  6. The notes payable represent bank loans that are secured by long-term investments carried at $120,000. These bank loans are due in 2011.

  7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2021.

  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, 2010, so that all important information is fully disclosed.

P5-4 (Preparation of a Corrected Balance Sheet) Presented below and on the next page is the balance sheet of Kishwaukee Corporation as of December 31, 2010.



Instructions

Prepare a corrected classified balance sheet in good form. The notes above are for information only.

P5-5 (Balance Sheet Adjustment and Preparation) Presented below is the balance sheet of Sargent Corporation for the current year, 2010.



The following information is presented.

  1. The current assets section includes: cash $150,000, accounts receivable $170,000 less $10,000 for allowance for doubtful accounts, inventories $180,000, and unearned revenue $5,000. Inventories are stated on the lower of FIFO cost or market.

  2. The investments section includes: the cash surrender value of a life insurance contract $40,000; investments in common stock, short-term (trading) $80,000 and long-term (available-for-sale) $270,000, and bond sinking fund $250,000. The cost and fair value of investments in common stock are the same.

  3. Property, plant, and equipment includes: buildings $1,040,000 less accumulated depreciation $360,000; equipment $450,000 less accumulated depreciation $180,000; land $500,000; and land held for future use $270,000.

  4. Intangible assets include: a franchise $165,000; goodwill $100,000; and discount on bonds payable $40,000.

  5. Current liabilities include: accounts payable $140,000; notes payable—short-term $80,000 and long-term $120,000; and taxes payable $40,000.

  6. Long-term liabilities are composed solely of 7% bonds payable due 2018.

  7. Stockholders' equity has: preferred stock, no par value, authorized 200,000 shares, issued 70,000 shares for $450,000; and common stock, $1.00 par value, authorized 400,000 shares, issued 100,000 shares at an average price of $10. In addition, the corporation has retained earnings of $320,000.

Instructions

Prepare a balance sheet in good form, adjusting the amounts in each balance sheet classification as affected by the information given above.

P5-6 (Preparation of a Statement of Cash Flows and a Balance Sheet) Lansbury Inc. had the balance sheet shown on the following page at December 31, 2009.



During 2010 the following occurred.

  1. Lansbury Inc. sold part of its investment portfolio for $15,000. This transaction resulted in a gain of $3,400 for the firm. The company classifies its investments as available-for-sale.

  2. A tract of land was purchased for $18,000 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 totalling $8,200 were declared and paid to stockholders.

  6. Net income for 2010 was $32,000 after allowing for depreciation of $11,000.

  7. Land was purchased through the issuance of $30,000 in bonds.

  8. At December 31, 2010, Cash was $32,000, Accounts Receivable was $41,600, and Accounts Payable remained at $30,000.

Instructions

  1. Prepare a statement of cash flows for 2010.

  2. Prepare an unclassified balance sheet as it would appear at December 31, 2010.

  3. How might the statement of cash flows help the user of the financial statements? Compute two cash flow ratios.

P5-7 (Preparation of a Statement of Cash Flows and Balance Sheet) Aero Inc. had the following balance sheet at December 31, 2009.



During 2010 the following occurred.

  1. Aero liquidated its available-for-sale investment portfolio at a loss of $5,000.

  2. A tract of land was purchased for $38,000.

  3. An additional $30,000 in common stock was issued at par.

  4. Dividends totaling $10,000 were declared and paid to stockholders.

  5. Net income for 2010 was $35,000, including $12,000 in depreciation expense.

  6. Land was purchased through the issuance of $30,000 in additional bonds.

  7. At December 31, 2010, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000.

Instructions

  1. Prepare a statement of cash flows for the year 2010 for Aero.

  2. Prepare the balance sheet as it would appear at December 31, 2010.

  3. Compute Aero's free cash flow and the current cash debt coverage ratio for 2010.

  4. Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.


  

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