ACCT 3001 Lecture Notes - Lecture 11: Sinking Fund, Common Stock, Deferral
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Problems: For partial credit, work must be shown in an orderlyfashion. Answers will be graded based on their ability tocommunicate the problem solvingprocess. 30 points
Required: Prepare a multiple-step income statement in good form.
Calculate retained earnings as of December 31.
Prepare a classified balance sheet ingood form.
Calculate the providedratios 20 points
Additional Information:
Assume that all taxes are at 30% unless otherwise indicated. Theincome tax expense on continuing operations and the income taxliability have not yet been recorded.
Line Item 1 refers to a loss of $70,000 on uninsured damagedfrom a meteor that crashed into a plant facility in New Mexico. Themeteor is considered BOTH UNUSUAL AND INFREQUENT. The applicabletax rate was 35%.
Line Item 2 is income from the publishing division of the firmprior to May 1, 2016. On May 1, management decided to spin-off[discontinue] the operations.
Line Item 3 is also related to the publishing division mentionedin âcâ above. Actual losses on the divisions operations after May 1totaled $50,000. Management further expected additional losses of$30,000 on operations and a loss of $220,000 on the sale of thedivisionâs assets.
Line Item 4 arose from the sale of long-term investments. Theportfolio that originally cost $250,000 was sold for $284,000.
Line Item 5 arose from discovery of equipment, costing $600,000that had been written off in 2014 as an operating expense. As ofthe beginning of the 2016 the accumulated depreciation was$100,000. The book value of the equipment was $500,000.
Line Item 6 refers to restructuring costs.
Line Item 7 refers to inventory that was on Hand on December 31,and was discovered to be obsolete during the year-end count onJanuary 15, 2017.
The investment account represents two portfolios. The firstportfolio cost $200,000 and is worth $215,000. These stocks andbonds are available currently for sale to raise cash resources. Theother investment, costing $1,000,000 and worth $1,000,000, will beheld indefinitely [long-term] by management.
Included in goodwill is an amount equal to $100,000 thatmanagement âcreatedâ after a successful advertising campaign. Theoffsetting credit was to paid-in capital in excess of par value:common.
During 2016, management decided that the usefulness of thefranchise would only last four of the remaining five years.Consequently, management increased the amortization by $100,000 or25 percent in 2016. The new estimate was used in 2016 and would becontinued for the remaining three years.
Inventory on December 31, 2016 was $200,000 after consideringthe decline from line item 7.
The state authorized 100,000 shares of 8 % preferred stock witha par value of $100 of which 8,000 shares have been issued.
The state also authorized 2,000,000 shares of common stock, witha par value of $10 par value. There are no shares in treasury.
The bonds will be refinanced when they are due in 2017.
Foreign currency translation losses were $ 3,000.
Thornhill Company | ||||
Trial Balance | ||||
as of December 31, 2016 | ||||
Account Title | Debit | Credit | ||
8 %, Preferred Stock | $ - | $ 1,000,000.00 | ||
Accounts Payable | 120,000 | |||
Accounts Receivable | 300,000 | |||
Accumulated Depreciation: building | 970,000 | |||
Accumulated Depreciation: equipment | 3,550,000 | |||
Administrative Expenses | 400,000 | |||
Bond Payable | 4,000,000 | |||
Building | 2,000,000 | |||
Cash | 100,000 | $ - | ||
Common Stock (200,000 shares outstanding) | 5,550,000 | |||
Discount on Bonds Payable | 125,000 | |||
Dividends | 300,000 | |||
Equipment | 5,000,000 | |||
Franchise | 340,000 | |||
Freight-in | 15,000 | |||
Goodwill | 785,000 | |||
Income Taxes Expenses | 88,200 | |||
Income taxes Payable | 88,200 | |||
Interest Expense | 700,000 | |||
Inventory | 170,000 | |||
Investments | 1,200,000 | |||
Land | 800,000 | |||
Long-term Notes Payable | 2,500,000 | |||
Net Sales | 5,300,000 | |||
Paid-in Capital in excess of par value: common | 300,000 | |||
Plant Facilities under Construction | 8,000,000 | |||
Prepaid Expenses | 60,000 | |||
Purchase Discounts | 65,000 | |||
Purchase Returns and Allowances | 125,000 | |||
Purchases | 2,575,000 | |||
Retained Earnings | 747,500 | |||
Selling Expenses | 650,000 | |||
Item 1 (net of taxes of $24,500) | 45,500 | |||
Item 2 (net of taxes of $6,000) | 14,000 | |||
Item 3 (net of taxes of $90,000) | 210,000 | |||
Item 4 | 34,000 | |||
Item 5 (net of taxes of $150,000) | 350,000 | |||
Item 6 | 840,000 | |||
Item 7 | 10,000 | |||
Total | $ 24,713,700 | $ 24,713,700 | ||
Financial Ratios
Current Ratio = Current Assets /Current Liabilities.
Quick Ratio = (Cash + MarketableSecurities + Receivables) / Current Liabilities.
Working Capital = Current Assets -Current Liabilities.
Total debt to total assets = Total Liabilities / TotalAssets.
Gross Profit Rate = Gross Profit/ Net Sales
Netincome as a percentage of sales = Net Income / Net Sales
Return on assets= Operating Income
[Beginning Total Assets + Ending Total Assets]/2
Assume that beginning assets were $13,720,000
Return on stockholdersâ equity=
Net Income
[BeginningTotal Stockholdersâ Equity + Ending Total StockholdersâEquity]/2
Assume that beginning stockholdersâequity was $7,947,500
Price-Earnings Ratio = MarketPrice per Commons Share
Earnings per Common Share
Assume a market price of $ 1.00
Accounts Receivable Turnover = NetSales
Assume that beginning accounts receivable were $ 300,000
Average Collection Period = 365 days/ Accounts Receivable Turnover Ratio
Inventory Turnover = Cost of Goods Sold
Average Sales Period = 365 days /Inventory Turnover Ratio
Operating Cycle = The AverageCollection Period + The Average Sales Period.
i need you to prepare a completeclassified balance sheet based on the trial balance and theadditional information. Next, I need you to prepare a multi-stepincome statement based on the same information. Then, calculate thefinancial ratios provided.
1. The net income reported on the income statement for thecurrent year was $288,417. Depreciation recorded on fixed assetsand amortization of patents for the year were $41,876, and $11,524,respectively. Balances of current asset and current liabilityaccounts at the end and at the beginning of the year are asfollows:
| End | Beginning | |
| Cash | $46,710 | $55,173 |
| Accounts receivable | 100,038 | 129,780 |
| Inventories | 87,496 | 101,142 |
| Prepaid expenses | 7,305 | 4,393 |
| Accounts payable (merchandise creditors) | 62,403 | 55,238 |
What is the amount of cash flows from operating activitiesreported on the statement of cash flows prepared by the indirectmethod?
a. $315,644
b. $389,458
c. $276,574
d. $385,205
2.
Determine the relationship of $219,652 to $115,020, expressed asa ratio.
Select the correct answer.
a. 1.9 to 1
b. 1.1 to 1
c. 0.5 to 1
d. 0.7 to 1
3.
Based on the following data for Privett Company, what is thequick ratio, rounded to one decimal point?
| Privett Company | |
| Accounts payable | $33,191 |
| Accounts receivable | 68,636 |
| Accrued liabilities | 6,715 |
| Cash | 23,006 |
| Intangible assets | 35,944 |
| Inventory | 88,660 |
| Long-term investments | 99,015 |
| Long-term liabilities | 71,468 |
| Marketable securities | 38,057 |
| Notes payable (short-term) | 23,392 |
| Property, plant, and equipment | 691,785 |
| Prepaid expenses | 1,629 |
a. 16.5
b. 1
c. 2
d. 3.5
4.
The balance sheets at the end of each of the first two years ofoperations indicate the following:
| Kellman Company | ||
| Year 2 | Year 1 | |
| Total current assets | $618,015 | $564,556 |
| Total investments | 60,948 | 41,643 |
| Total property, plant, and equipment | 882,682 | 618,461 |
| Total current liabilities | 101,282 | 83,040 |
| Total long-term liabilities | 302,446 | 237,252 |
| Preferred 9% stock, $100 par | 84,252 | 84,252 |
| Common stock, $10 par | 521,610 | 521,610 |
| Paid-in capital in excess of par-common stock | 65,163 | 65,163 |
| Retained earnings | 486,892 | 233,343 |
Using the balance sheets for Kellman Company, if net income is$113,275 and interest expense is $33,061 for Year 2, what is thereturn on total assets for the year (round percent to two decimalpoints)?
a. 9.25%
b. 10.50%
c. 7.25%
d. 10.99%
