WEEK 3 EXERCISES

WEEK 3 EXERCISES

Brief Exercise 5-2 Koch Corporation’s

Exercise 5-1 Deep Blue Something, Inc

Exercise 5-4  Denis Savard Inc

Exercise 5-7 Yasunari Kawabata Company

Exercise 5-12 Scott Butler Corporation

Exercise 24-2 For each of the following subsequent

Exercise 24-3 Carlton Company

Exercise 24-4 As loan analyst for Utrillo Bank

Brief Exercise 5-2

Koch Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2014: Cash $7,000; Land $40,000; Patents $12,500; Accounts Receivable $90,000; Prepaid Insurance $5,200; Inventory $30,000; Allowance for Doubtful Accounts $4,000; Equity Investments (trading) $11,000.

Prepare the current assets section of the balance sheet. (List Current Assets in order of liquidity.)

Brief Exercise 5-6

Patrick Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2014: Prepaid Rent $12,000; Goodwill $50,000; Franchise Fees Receivable $2,000; Franchises $47,000; Patents $33,000; Trademarks $10,000.

Prepare the intangible assets section of the balance sheet

Exercise 5-1

Presented below are a number of balance sheet accounts of Deep Blue Something, Inc. For each of the accounts below, indicate the proper balance sheet classification.         

		Balance Sheet Accounts		Balance Sheet Classification
(a)		Investment in Preferred Stock.
(b)		Treasury Stock.
(c)		Common Stock.
(d)		Dividends Payable.
(e)		Accumulated Depreciation-Equipment.
(f)(1)		Construction in Process (Constructed for another party).
(f)(2)		Construction in Process (Constructed for the use of Deep Blue Something, Inc.).
(g)		Petty Cash.
(h)		Interest Payable.
(i)		Deficit.
(j)		Equity Investments (trading).
(k)		Income Taxes Payable.
(l)		Unearned Subscription Revenue.
(m)		Work in Process.
(n)		Salaries and Wages Payable.

Exercise 5-4

Assume that Denis Savard Inc. has the following accounts at the end of the current year.

1.		Common Stock		14.		Accumulated Depreciation-Buildings.
2.		Discount on Bonds Payable.		15.		Cash Restricted for Plant Expansion.
3.		Treasury Stock (at cost).		16.		Land Held for Future Plant Site.
4.		Notes Payable (short-term).		17.		Allowance for Doubtful Accounts.
5.		Raw Materials		18.		Retained Earnings.
6.		Preferred Stock (Equity) Investments (long-term).		19.		Paid-in Capital in Excess of Par-Common Stock.
7.		Unearned Rent Revenue.		20.		Unearned Subscriptions Revenue.
8.		Work in Process.		21.		Receivables-Officers (due in one year).
9.		Copyrights.		22.		Inventory (finished goods).
10.		Buildings.		23.		Accounts Receivable.
11.		Notes Receivable (short-term).		24.		Bonds Payable (due in 4 years).
12.		Cash.		25.		Noncontrolling Interest.
13.		Salaries and Wages Payable.

Prepare a classified balance sheet in good form. (List Current Assets in order of liquidity. For Land, Treasury Stock, Notes Payable, Preferred Stock Investments, Notes Receivable, Receivables-Officers, Inventory, Bonds Payable, and Restricted Cash, enter the account name only and do not provide the descriptive information provided in the question.)

Exercise 5-7

Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014.

Inventory (finished goods)		$ 52,000		Cost of Goods Sold		$2,100,000
Unearned Service Revenue		90,000		Notes Receivable		40,000
Equipment		253,000		Accounts Receivable		161,000
Inventory (work in process)		34,000		Inventory (raw materials)		207,000
Cash		37,000		Supplies Expense		60,000
Equity Investments (short-term)		31,000		Allowance for Doubtful Accounts		12,000
Customer Advances		36,000		Licenses		18,000
Restricted Cash for Plant Expansion		50,000		Additional Paid-in Capital		88,000
				Treasury Stock		22,000

The following additional information is available

1. Inventories are valued at lower-of-cost-or-market using LIFO.

2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is $50,600.

3. The short-term investments have a fair value of $29,000. (Assume they are trading securities.)

4. The notes receivable are due April 30, 2016, with interest receivable every April 30. The notes bear interest at 6%. (Hint: Accrued interest due on December 31, 2014.)

5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable of $50,000 are pledged as collateral on a bank loan.

6. Licenses are recorded net of accumulated amortization of $14,000.

7. Treasury stock is recorded at cost..

Prepare the current assets section of Yasunari Kawabata Company’s December 31, 2014, balance sheet, with appropriate disclosures. (List Current Assets in order of liquidity. Enter account name only and do not provide the descriptive information provided in the question.)

Exercise 5-12

Presented below is the trial balance of Scott Butler Corporation at December 31, 2014.

		Debit		Credit
Cash		$   197,000
Sales				$ 8,100,000
Debt Investments (trading) (cost, $145,000)		153,000
Cost of Goods Sold		4,800,000
Debt Investments (long-term)		299,000
Equity Investments (long-term)		277,000
Notes Payable (short-term)				90,000
Accounts Payable				455,000
Selling Expenses		2,000,000
Investment Revenue				63,000
Land		260,000
Buildings		1,040,000
Dividends Payable				136,000
Accrued Liabilities				96,000
Accounts Receivable		435,000
Accumulated Depreciation-Buildings				152,000
Allowance for Doubtful Accounts				25,000
Administrative Expenses		900,000
Interest Expense		211,000
Inventory		597,000
Gain (extraordinary)				80,000
Notes Payable (long-term)				900,000
Equipment		600,000
Bonds Payable				1,000,000
Accumulated Depreciation-Equipment				60,000
Franchises		160,000
Common Stock ($5 par)				1,000,000
Treasury Stock		191,000
Patents		195,000
Retained Earnings				78,000
Paid-in Capital in Excess of Par				80,000
Totals		$12,315,000		$12,315,000

Prepare a balance sheet at December 31, 2014, for Scott Butler Corporation. (Ignore income taxes). (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Land, Building and Equipment. Enter account name only and do not provide the descriptive information provided in the question.)

Exercise 24-2

For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

Sr. No.		Subsequent (Post-Balance-Sheet) Events
1.		Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.
2.		Introduction of a new product line.
3.		Loss of assembly plant due to fire.
4.		Sale of a significant portion of the company’s assets.
5.		Retirement of the company president.
6.		Prolonged employee strike.
7.		Loss of a significant customer.
8.		Issuance of a significant number of shares of common stock.
9.		Material loss on a year-end receivable because of a customer’s bankruptcy.
10.		Hiring of a new president.
11.		Settlement of prior year’s litigation against the company (no loss was accrued).
12.		Merger with another company of comparable size.

Exercise 24-3

Carlton Company is involved in four separate industries. The following information is available for each of the four industries.

Operating Segment		Total Revenue		Operating Profit (Loss)			Identifiable Assets
W		$60,000		$15,000			$167,000
X		10,000		3,000			83,000
Y		23,000		(2,000)			21,000
Z		9,000		1,000			19,000
		$102,000		$17,000			$290,000

Determine which of the operating segments are reportable based on the:

				Reportable Segments
(a)		Revenue test.
(b)		Operating profit (loss) test.
(c)		Identifiable assets test.

Exercise 24-4

As loan analyst for Utrillo Bank, you have been presented the following information.

		Toulouse Co.			Lautrec Co.
Assets
Cash		$120,000			$320,000
Receivables		220,000			302,000
Inventories		570,000			518,000
Total current assets		910,000			1,140,000
Other assets		500,000			612,000
Total assets		$1,410,000			$1,752,000
Liabilities and Stockholders’ Equity
Current liabilities		$305,000			$350,000
Long-term liabilities		400,000			500,000
Capital stock and retained earnings		705,000			902,000
Total liabilities and stockholders’ equity		$1,410,000			$1,752,000
Annual sales		$930,000			$1,500,000
Rate of gross profit on sales		30	%		40	%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Compute the various ratios for each company. (Round answer to 2 decimal places, e.g. 2.25.)

		Toulouse Co.			Lautrec Co.
Current ratio			: 1			: 1
Acid-test ratio			: 1			: 1
Accounts receivable turnover			times			times
Inventory turnover			times			times
Cash to current liabilities			: 1			: 1

TUTORIAL PREVIEW

Current assets
Cash		$    7,000
Equity Investments (Trading)		11,000
Accounts receivable	$90,000

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