Chapter 5: Question 9Q (page 237)
How does separating current assets from property, plant, and equipment in the balance sheet help analysts?
Classification of assets helps the analyst by simplifying the process ofratio analysis and financial statement analysis.
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Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as \(90,000.
(a) Accounts receivable increased from \)34,000 to \(39,000 from the beginning to the end of the year.
(b) During the year, 10,000 shares of preferred stock with a par value of \)100 per share were issued at \(115 per share.
(c) Depreciation expense amounted to \)14,000, and bond premium amortization amounted to \(5,000.
(d) Land increased from \)10,000 to $30,000.
How does information from the balance sheet help users of the financial statements?
In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?
(a) Treasury stock (recorded at cost).
(b) Checking account at bank.
(c) Land (held as an investment).
(d) Sinking fund.
(e) Unamortized premium on bonds payable.
(f) Copyrights.
(g) Pension fund assets.
(h) Premium on common stock.
(i) Long-term investments (pledged against bank loans payable).
What is meant by liquidity? Rank the following assets from one to five in order of liquidity.
(a) Goodwill.
(b) Inventory.
(c) Buildings.
(d) Short-term investments.
(e) Accounts receivable.
E5-8 (L02) (Current vs. Long-term Liabilities) Frederic Chopin Corporation is preparing its December 31, 2017, balance sheet. The following items may be reported as either a current or long-term liability.
1. On December 15, 2017, Chopin declared a cash dividend of \(2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2018. Chopin has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury.
2. At December 31, bonds payable of \)100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of \(25,000,000 every September 30, beginning September 30, 2018.
3. At December 31, 2016, customer advances were \)12,000,000. During 2017, Chopin collected \(30,000,000 of customer advances; advances of \)25,000,000 should be recognized in income.
Instructions For each item above, indicate the dollar amounts to be reported as a current liability and as a long-term liability if any.
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