Complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.

The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Inventories
Total current assets			$
Long-Term investment, at fair value
Property, Plant, and Equipment (at cost):
Land		$
Building	$
Machinery and equipment
Total
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible Asset:
Goodwill
Other Assets:
Cash restricted for building purposes		$
Officer's note receivable
Land held for future building site
Total Assets			$
Liabilities
Current Liabilities:
Accounts payable		$
Current installments of long-term debt
Lawsuit liability
Income taxes payable
Deferred tax liability
Total current liabilities			$
Long-Term Debt:
Mortgage payable		$
Notes payable
Deferred tax liability
Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
Common stock, $50 par value		$
Additional paid-in capital
Total paid-in capital		$
Retained earnings
Accumulated Other Comprehensive Loss:
Unrealized decrease in value of long-term investment
Total		$
Less: Cost of treasury stock
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

browncattle687

complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.

The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Notes payable
Total current assets			$

Property, Plant, and Equipment (at cost):
		$
	$

Total

Total property, plant, and equipment
Intangible Asset:

Other Assets:
		$


Total Assets			$
Liabilities
Current Liabilities:
		$




Total current liabilities			$
Long-Term Debt:
		$


Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
		$

Total paid-in capital		$

Accumulated Other Comprehensive Loss:

Total		$

Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

browndolphin263

Case 2.3 Walgreens Co. and Subsidiaries

The following excerpts are from the 2013 Walgreen Co. Form 10-K:

CONSOLIDATED BALANCE SHEETS

Walgreens Co. and Subsidiaries at August 31,2013 and 2012

(in millions, except shares and per share amounts)

Cash and cash equivalents

Property & equipment, at cost,less accumulated deprec & amortization

$12,138

$12,038

Equity investment in Alliance Boots

$2,410

$2,161

Alliance Boots call option

Other noncurrent assets

Liabilities and Shareholders' Equity

Current Liabilities

Short-term borrowings

$570

$1,319

Trade accounts payable

$4,635

$4,384

Accrued expenses and other liabilities

Total Current Liabilites

$8,883

$8,722

Noncurrent liabilites

Long-term debt

$4,477

$4,073

Deferred income taxes

$600

$545

Other noncurrent liabilities

$2,067

$1,866

Total noncurrent liabilites

$7,144

$6,504

Commitments and contingencies(see note)

Shareholders' Equity

Preferred stock, $.0625 per value; authorized 32 million shares;

issued 1,028,180,150 shares in 2013 and 2012

Employee stock loan recievable

Accumulated other comprehensive (loss) income

($98)

$68

Treasury Stock at cost, 81,584,572 shares in 2013 and

84,124,816 shares in 2012

($3,114)

($2,985)

Total Shareholders' Equity

$19,454

$18,236

Total Liabilites and Shareholder's Equity

$35,481

$33,462

The accompanying Notes to Consolidated Financial Statements are integral parts of these statments.

Notes to Consolidated financial Statements

1.Summary of Major Accounting Policies

Description of Business

The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011.

Allowance for Doubtful Accounts

The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):

	2013	2012	2011
Balance at beginning of year	$99	$101	$104
Bad debt provision	$124	$107	$88
Write-offs	($69)	($109)	($91)
Balance at end of year	$154	$99	$101

Inventories

Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense.

3.Leases

The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions):

	Capital Lease	Operatin Lease
2014	$19	$2,536
2015	$19	$2,514
2016	$18	$2,464
2017	$17	$2,389
2018	$15	$2,292
Later	$270	$23,507
Total Minimum lease Payments	$358	$35,702

The capital lease amoutn includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.

The Company remains secondarily liable on 26 assigned leases. The maiximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.

WALGREEN CO. INFORMATION FROM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended August 31,2013 and 2012 (in millions)
	2013	2012
Sales	$72,217	$71,633
Net Income	$2,450	$2,127

Required:

a. Using the consolidated balance sheets for Walgreen Co. for August 31,2013 and 2012, prepare a common-size balance sheet.

b. Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?

c. Analyze accounts recievable and allowance for doubtful accounts.

d. What inventory is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to net income reported.

e. Assess the level of debt and risk that Walgreen has by looking only at the balnce sheet.

f. Estimate the dollar amount of dividends Walgreens paid in 2013.

g. Does Walgreen use off-balance sheet fiancing? Explain your answer.

h. Evaluate the creidtworthiness of Walgreen based on the Balance sheet and the excerpts from the notes.

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