Chapter 5: 2 (page 237)
What is meant by solvency? What information in the balance sheet can be used to assess a company’s solvency?
Solvency reflects the ability to repay the borrowed money. It can be determined using the liabilities and the assets classified as current in nature.
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Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of \(400,000.
BE5-14 (L05) Martinez Corporation engaged in the following cash transactions during 2017.
Sale of land and building \)191,000
Purchase of treasury stock 40,000
Purchase of land 37,000
Payment of cash dividend 95,000
Purchase of equipment 53,000
Issuance of common stock 147,000
Retirement of bonds 100,000
Compute the net cash provided (used) by investing activities.
Included in Outkast Company’s December 31, 2017, trial balance are the following accounts: Prepaid Rent \(5,200, Debt Investments (to be held to maturity until 2020) \)56,000, Unearned Fees \(17,000, Land (held for investment) \)39,000, and Notes Receivable (long-term) $42,000. Prepare the long-term investments section of the balance sheet.
EXCEL (Balance Sheet Preparation) Presented below are a number of balance sheet items for Montoya, Inc., for the current year, 2017.
Goodwill | \(125,000 | Accumulated depreciation - equipment | \)292,000 |
Payroll tax payable | 177,591 | Inventory | 239,800 |
Bond payable | 300,000 | Rent payable (short-term) | 45,000 |
Discount on bond payable | 15,000 | Income tax payable | 98,362 |
Cash | 360,000 | Rent payable (long-term) | 480,000 |
Land | 480,000 | Common stock, \(1 par value | 200,000 |
Notes receivable | 445,700 | Preferred stock, \)10 par value | 150,000 |
Note payable | 265,000 | Prepaid expenses | 87,920 |
Account payable | 490,000 | Equipment | 1,470,000 |
Retained earnings | Debt investment (trading) | 121,000 | |
Income tax receivable | 97,630 | Accumulated depreciation – building | 270,200 |
Note payable (Long-term) | 1,600,000 | Buildings | 1,640,000 |
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. The cost and fair value of equity investments (trading) are the same.
Stowe Company’s December 31, 2017, trial balance includes the following accounts: Investment in Common Stock \(70,000, Retained Earnings \)114,000, Trademarks \(31,000, Preferred Stock \)152,000, Common Stock \(55,000, Deferred Income Taxes \)88,000, Paid-in Capital in Excess of Par—Common Stock \(174,000, and Noncontrolling Interest \)63,000. Prepare the stockholders’ equity section of the balance sheet.
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.
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