Chapter 5: 12Q (page 237)
What is the relationship between current assets and current liabilities?
Current liabilities are liquidated using thecurrent assets as they both get due or provide benefit within one year.
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(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.)
Question: E5-3 (L02,3) (Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.
(a) Current assets | (g) Long-term liabilities |
(b) Investments | (h) Capital stock |
(c) Property, plant, and equipment | (i) Equity attribute to non-controlling interest |
(d) Intangible assets | (i) paid-in-capital in excess of par |
(e) Other assets | (k) Retained earnings |
(f) Current liabilities |
Instructions
Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter “N” to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter “X.”
1. Prepaid insurance.
2. Stock owned in affiliated companies.
3. Unearned service revenue.
4. Advances to suppliers.
5. Unearned rent revenue.
6. Preferred stock.
7. Additional paid-in capital on preferred stock.
8. Copyrights.
9. Petty cash fund.
10. Sales taxes payable.
11. Accrued interest on notes receivable.
12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)
13. Machinery retired from use and held for sale.
14. Fully depreciated machine still in use.
15. Accrued interest on bonds payable.
16. Salaries that company budget shows will be paid to employees within the next year.
17. Discount on bonds payable. (Assume related to bonds payable in item 12.)
18. Accumulated depreciation—buildings.
19. Shares held by non-controlling stockholders.
IFRS5-4 Rainmaker Company prepares its financial statements in accordance with IFRS. In 2017, Rainmaker recorded the following revaluation adjustments related to its buildings and land: The company’s building increased in value by \(200,000; its land declined by \)35,000. How will these revaluation adjustments affect Rainmaker’s statement of financial position? Will the reporting differ under GAAP? Explain.
Sergey Co. has net cash provided by operating activities of \(1,200,000. Its average current liabilities for the period are \)1,000,000, and its average total liabilities are $1,500,000. Comment on the company’s liquidity and financial flexibility, given this information.
Case 3: Deere & Company Presented below is the SEC-mandated disclosure of contractual obligations provided by Deere & Company in a recent annual report. Deere & Company reported current assets of \(50,060 and total current liabilities of \)21,394 at year-end. (All dollars are in millions.)
Aggregate Contractual Obligations
The payment schedule for the company’s contractual obligations at year-end in millions of dollars is as follows:
Total | Less than 1 year | 1-3 Years | 4 and 5 Years | More than 5 Years | |
Debt | |||||
Equipment Operations | \( 5,091 | \) 434 | \( 270 | \)775 | \( 3,612 |
Financial services | 31,692 | 9,962 | 11,477 | 6,578 | 3,675 |
Total | 36,783 | 10,396 | 11,747 | 7,353 | 7,287 |
Interest on debt | 4,777 | 609 | 1,069 | 745 | 2,354 |
Account payable | 2,743 | 2,611 | 90 | 39 | 3 |
Capital lease | 87 | 39 | 42 | 4 | 2 |
Purchase obligations | 3,007 | 2,970 | 37 | 0 | 0 |
Operating leases | 371 | 121 | 134 | 70 | 46 |
Total | \) 47,768 | \( 16,746 | \)13,119 | 8,211 | 9,692 |
Instructions
(a) Compute Deere & Company’s working capital and current ratio (current assets ÷ current liabilities) with and without the off-balance-sheet contractual obligations reported in the schedule.
(b) Briefly discuss how the information provided in the contractual obligation disclosure would be useful in evaluating Deere & Company for loans (1) due in one year and (2) due in five years.
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