Chapter 5: BE5-6 (page 239)
Patrick Corporation’s adjusted trial balance contained the following asset accounts at December 31, 2017: Prepaid Rent
Intangible Assets of the business entity total$140,000.
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P5-5 (L03) GROUPWORK (Balance Sheet Adjustment and Preparation) Presented below is the balance sheet of Sargent Corporation for the current year, 2017.
SARGENT CORPORATION | |||
Balance Sheet | |||
December 31, 2017 | |||
Current assets | \(485,000 | Current liabilities | \)380,000 |
Investment | 640,000 | Long-term liabilities | 1,000,000 |
Property, Plant, and Equipment | 1,720,000 | Stockholder’s equity | 1,770,000 |
Intangible assets | 305,000 | ||
\(3,150,000 | \)3,150,000 |
The following information is presented.
1. The current assets section includes cash
2. The investments section includes the cash surrender value of a life insurance contract \)40,000; investments in common stock, short-term
3. Property, plant, and equipment includes buildings \)1,040,000 less accumulated depreciation
4. Intangible assets include a franchise \)165,000, goodwill
5. Current liabilities include accounts payable
6. Long-term liabilities are composed solely of 7% bonds payable due 2025.
7. Stockholders’ equity has preferred stock, no par value, authorized 200,000 shares, issued 70,000 shares for
Instructions
Prepare a balance sheet in good form, adjusting the amounts in each balance sheet classification as affected by the information given above.
Early in January 2018, Hopkins Company is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2017.
Debit \( | Credit \) | |
Cash | \(75,000 | |
Accounts receivable (net) | 38,500 | |
Inventory (net) | 65,300 | |
Equipment (net) | 84,000 | |
Patent | 15,000 | |
Notes and Accounts payable | \)52,000 | |
Note payable (due 2019) | 75,000 | |
Common stock | 100,000 | |
Retained earnings | 50,800 | |
\(277,800 | \)277,800 |
Except for the following items, Hopkins has recorded all adjustments in its accounts.
1. Cash includes
2. Net accounts receivable is comprised of
3. Equipment had a cost of
4. On January 8, 2018, one of Hopkins’ customers declared bankruptcy. At December 31, 2017, this customer owed Hopkins \(9,000.
Accounting
Prepare a corrected December 31, 2017, balance sheet for Hopkins Company.
Analysis
Hopkins’ bank is considering granting an additional loan in the amount of \)45,000, which will be due December 31, 2018. How can the information in the balance sheet provide useful information to the bank about Hopkins’ ability to repay the loan?
Principles
In the upcoming meeting with the bank, Hopkins plans to provide additional information about the fair value of its equipment and some internally generated intangible assets related to its customer lists. This information indicates that Hopkins has significant unrealized gains on these assets, which are not reflected on the balance sheet. What objections is the bank likely to raise about the usefulness of this information in evaluating Hopkins for the loan renewal?
(Preparation of a Classified Balance Sheet) Assume that Denis Savard Inc. has the following accounts at the end of the current year.
1. Common Stock.
2. Discount on Bonds Payable.
3. Treasury Stock (at cost).
4. Notes Payable (short-term).
5. Raw Materials.
6. Preferred Stock Investments (long-term).
7. Unearned Rent Revenue.
8. Work in Process.
9. Copyrights.
10. Buildings.
11. Notes Receivable (short-term).
12. Cash.
13. Salaries and Wages Payable.
14. Accumulated Depreciation—Buildings.
15. Restricted Cash for Plant Expansion.
16. Land Held for Future Plant Site.
17. Allowance for Doubtful Accounts.
18. Retained Earnings.
19. Paid-in Capital over Par—Common Stock.
20. Unearned Subscriptions Revenue.
21. Receivables—Officers (due in one year).
22. Inventory (finished goods).
23. Accounts Receivable.
24. Bonds Payable (due in 4 years).
25. Noncontrolling Interest.
Instructions
Prepare a classified balance sheet in good form. (No monetary amounts are necessary.)
Ames Company reported 2017 net income of
Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.
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