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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(Identifying Balance Sheet Deficiencies) The assets of Fonzarelli Corporation are presented below (000s omitted).
FONZARELLI CORPORATION | ||
BALANCE SHEET (PARTIAL) | ||
DECEMBER 31, 2018 | ||
Assets | ||
Cash | \(100,000 | |
Unclaimed payroll check | 27,500 | |
Debt investment (trading) (fair value \)30,000) at cost | 37,000 | |
Accounts receivables (less bad debt reserves) | 75,000 | |
Inventory—at lower-of-cost (determined by the next-in, first-out method) or net realizable value | 240,000 | |
Total current assets | 479,500 | |
Tangible assets | ||
Land (less accumulated depreciation) | 80,000 | |
Building and equipment | \(800,000 | |
Less: Accumulated depreciation | (250,000) | 550,000 |
Net tangible assets | 630,000 | |
Long-term investment | ||
Stock and bonds | 100,000 | |
Treasury stock | 70,000 | |
Total long-term investment | 170,000 | |
Other assets | ||
Discount on bonds payable | 19,400 | |
Sinking funds | 975,000 | |
Total other assets | 994,400 | |
Total assets | \)2,273,900 |
Instructions
Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets.
E5-12 (L03) (Preparation of a Balance Sheet) Presented below is the trial balance of Scott Butler Corporation at December 31, 2017.
Particular | Debit | Credit |
Cash | \(197,000 | |
Sales Revenue | \)8,100,000 | |
Debt investment (trading) (at cost \(145,000) | 153,000 | |
Cost of goods sold | 4,800,000 | |
Debt investment (long-term) | 299,000 | |
Equity Investment (long-term) | 277,000 | |
Notes payable (Short-term) | 90,000 | |
Account payable | 455,000 | |
Selling expenses | 2,000,000 | |
Investment revenue | 63,000 | |
Land | 260,000 | |
Buildings | 1,040,000 | |
Dividend payable | 136,000 | |
Accrued Liabilities | 96,000 | |
Accounts Receivable | 435,000 | |
Accumulated depreciation – Building | 152,000 | |
Allowance for doubtful accounts | 25,000 | |
Administrative expenses | 900,000 | |
Interest expenses | 211,000 | |
Inventory | 597,000 | |
Gain | 80,000 | |
Notes payable | 900,000 | |
Equipment | 600,000 | |
Bonds payable | 1,000,000 | |
Accumulated depreciation – Equipment | 60,000 | |
Franchises | 160,000 | |
Common stock | 1,000,000 | |
Treasury stock | 191,000 | |
Patents | 195,000 | |
Retained Earnings | 78,000 | |
Paid-in-capital in excess of par | 80,0000 | |
Total | \)12,315,000 | $12,315,000 |
Instructions Prepare a balance sheet at December 31, 2017, for Scott Butler Corporation. (Ignore income taxes.)
(Critique of Balance Sheet Format and Content) The following is the balance sheet of Sameed Brothers Corporation (000s omitted).
SAMEED BROTHERS CORPORATION | ||
BALANCE SHEET | ||
DECEMBER 31, 2017 | ||
Assets | ||
Current assets | ||
Cash | \(26,000 | |
Marketable securities | 18,000 | |
Accounts receivables | 25,000 | |
Inventory | 20,000 | |
Supplies | 4,000 | |
Stock investment in subsidiary company | 20,000 | \)113,000 |
Investment | ||
Treasury stock | 25,000 | |
Property, Plant and Equipment | ||
Building and land | 91,000 | |
Less: Reserve for depreciation | (31,000) | 60,000 |
Other assets | ||
Cash Surrender value of life insurance | 19,000 | |
Total assets | \(217,000 | |
Liabilities and Stockholder’s equity | ||
Accounts payable | \)22,000 | |
Reserve for income taxes | 15,000 | |
Customer’s account with credit balance | 1 | \(37,001 |
Deferred credit | ||
Unamortized premium on bonds payable | 2,000 | |
Long term liabilities | ||
Bonds payable | 60,000 | |
Total liabilities | 99,001 | |
Common stock | ||
Common stock at par \)5 | 85,000 | |
Earned surplus | 24,999 | |
Cash Dividend declared | 8,000 | 117,999 |
Total liabilities and Stockholder’s equity | $217,000 |
Instructions
Evaluate the balance sheet presented. State briefly the proper treatment of any item criticized
What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?
BE5-5 (L03) Crane Corporation has the following accounts included in its December 31, 2017, trial balance: Equity Investments (trading) \(21,000, Goodwill \)150,000, Prepaid Insurance \(12,000, Patents \)220,000, and Franchises $130,000. Prepare the intangible assets section of the balance sheet.
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