Chapter 5: 4 (page 237)
Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.
Two estimates that will affect the usefulness of the balance sheet information are:
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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.
Case 2: Sherwin-Williams Company Sherwin-Williams, based in Cleveland, Ohio, manufactures a wide variety of paint and other coatings, which are marketed through its specialty stores and in other retail outlets. The company also manufactures paint for automobiles. The Automotive Division has had financial difficulty. During a recent year, five branch locations of the Automotive Division were closed, and new management was put in place for the remaining branches.
The following titles were shown on Sherwin-Williams’s balance sheet for that year.
Account payable | Machinery and Equipment |
Accounts receivable, less allowance | Other accruals |
Accrued taxes | Other capital |
Building | Other current assets |
Cash and Cash equivalents | Other long term liabilities |
Common stock | Postretirement obligation other than pension |
Employee compensation payable | Retained earnings |
Finished good inventories | Short-term investment |
Intangible and other assets | Taxes payable |
Land | Work in process and raw material inventories. |
Long-term debt |
Instructions
(a) Organize the accounts in the general order in which they would have been presented in a classified balance sheet.
(b) When several of the branch locations of the Automotive Division were closed, what balance sheet accounts were most likely affected? Did the balance in those accounts decrease or increase?
Keyser Beverage Company reported the following items in the most recent year.
Net income $40,000
Dividends paid 5,000
Increase in accounts receivable 10,000
Increase in accounts payable 7,000
Purchase of equipment (capital expenditure) 8,000
Depreciation expense 4,000
Issue of notes payable 20,000
Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow.
BE5-3 (L03) 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.
Where should the following items be shown on the balance sheet, if shown at all?
(a) Allowance for doubtful accounts.
(b) Merchandise held on consignment.
(c) Advances received on sales contract.
(d) Cash surrender value of life insurance.
(e) Land.
(f) Merchandise out on consignment.
(g) Franchises.
(h) Accumulated depreciation of equipment.
(i) Materials in transit—purchased f.o.b. destination.
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