Chapter 5: Question 3IFRS (page 262)
IFRS5-3 Briefly describe the convergence efforts related to financial statement presentation.
IASB and FASB both are working on projects to develop reporting standards of financial statements.
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(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
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.
The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2017 appear below.
MADRASAH CORPORATION | |||
BALANCE SHEETS | |||
Assets | Dec 31, 2017 | Jan 1, 2017 | Inc./Dec. |
Cash | \(20,000 | \)13,000 | \(7,000 Inc. |
Accounts receivable | 106,000 | 88,000 | 18,000 Inc. |
Equipment | 39,000 | 22,000 | 17,000 Inc. |
Less: Accumulated depreciation – Equipment | 17,000 | 11,000 | 6,000 Inc. |
Total | \)148,000 | \(112,000 | |
Liabilities and Stockholder’s equity | |||
Account payable | \)20,000 | \(15,000 | 5,000 Inc. |
Common stock | 100,000 | 80,000 | 20,000 Inc. |
Retained earnings | 28,000 | 17,000 | 11,000 Inc. |
Total | \)148,000 | \(112,000 |
Net income of \)44,000 was reported, and dividends of $33,000 were paid in 2017. New equipment was purchased and none was sold.
Instructions
(a) Prepare a statement of cash flows for the year 2017.
(b) Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2017, and December 31, 2017, and compute free cash flow for the year 2017.
(c) In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility.
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.
The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2017. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position.
Date
President Kappeler, CEO
Kappeler Corporation
125 Wall Street
Middleton, Kansas 67458
Dear Mr. Kappeler:
I have good news and bad news about the financial statements for the year ended December 31, 2017. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously . . .
Instructions
Complete the letter to the CEO, including the four components requested by your boss.
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