Solution manual intermediate accounting 15th kiesoch05

E5-5B 30–35 minutesDARLING COMPANY Balance Sheet December 31, 2014 Assets Current assets Long-term investments Cash surrender value of life... E5-11B 25–30 minutesDE YOUNG CORPORATION B

(d) Current liability.

(e) Current liability.

(f) When the company accounts for the treasury stock on the cost basis, the account should properly be shown as a reduction of total stockholders’ equity

(g) Current liability.

(h) If the warehouse in process of construction is being constructed for another party, it is properly classified as an inventory account in the current asset section This account will be shown net of any billings on the contract On the other hand, if the warehouse is being constructed for the use of this particular company, it should be classified as a separate item in the property, plant, and equipment section.

(i) Retained earnings.

(j) Current liability.

(k) Current asset

E5-4B (30–35 minutes)

CLUVER INC.

Balance Sheet December 31, 20xx

Assets Current assets

Property, plant, and equipment

E5-4B (Continued)

Liabilities and Stockholders’ Equity Current liabilities

Long-term debt

Stockholders’ equity

Capital stock

Additional paid-in capital

Total paid-in capital and

Total liabilities and

Note: As assumption made here is that cash included the cash restricted for plant expansion If it did not, then a subtraction from cash would not be necessary or the cash balance would be “grossed up” and then the cash restricted for plant expansion deducted.

E5-5B (30–35 minutes)

DARLING COMPANY Balance Sheet December 31, 2014

Assets Current assets

Long-term investments

Cash surrender value of life

Total liabilities and

*$3,272,000 – $2,365,000 – $810,000

E5-6B (30–35 minutes)

ODIE COMPANY Balance Sheet June 30, 2014 Assets Current assets

Cash $ 34,000*

Accounts receivable $84,800**

Less: Allowance for doubtful

accounts 7,000 77,800 Inventories 104,200***

Long-term investments

Property, plant, and equipment

E5-7B (15–20 minutes)

Current assets

Cash $130,500*

Trading securities at fair value (cost,

Accounts receivable (of which $75,000 is

Inventories at lower of cost (determined

using LIFO) or market

Finished goods 78,000

Work-in-process 51,000

Raw materials 310,500 439,500

*An acceptable alternative is to report cash at $55,500 and simply report the cash restricted for plant expansion in the investments section.

E5-8B (10–15 minutes)

($200,000,000 X 12% X 3/12) will be reported as a current liability Bonds payable of $150,000,000 will be reported as a long-term liability.

[(1,000,000 – 50,000) X $5.00].

dividends distributable are reported in the stockholders’ equity section.

($24,000,000 + $60,000,000 – $50,000,000).

E5-9B (30–35 minutes)

Balance Sheet (partial)

As of December 31, 2014 Current assets

[$97,500 X 98%)] 95,550

195,550

Adjusted cash $ 85,990

Add: Accounts reduced from January collection

282,000

E5-9B (Continued)

Purchase invoice omitted

January purchase discounts

E5-10B (15–20 minutes)

allowance or doubtful accounts credited for $150,000, this does not result

in a liability The allowance for doubtful accounts is a valuation account (contra asset) and is deducted from accounts receivable on the balance sheet.

(b) A current liability of $40,000 should be reported at December 31, 2014 The liability is recorded on the date of declaration.

($80,000 – $25,000).

(d) Accrued interest of $2,000 should be reported at December 31, 2014 ($300,000 X 8% X 1/12) The $300,000 note payable may also be current, depending on the maturity date.

must be probable and payment reasonably estimable Since these conditions are not met an accrual is not required.

E5-11B (25–30 minutes)

DE YOUNG CORPORATION

Balance Sheet December 31, 2014

Assets Current assets

E5-12B (30–35 minutes)

DO CORPORATION Balance Sheet December 31, 2014

Assets Current assets

Property, plant, and equipment

Building 520,000

Equipment 300,000

Total property, plant, and

Intangible assets

Common stock ($5 par) $500,000

Total paid-in capital and

Total liabilities and

stockholders’ equity

$1,988,000

(**Retained earnings computation is on the next page.)

E5-14B (25–35 minutes)

DUONG INC.

Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation expense $12,000

Cash flows from investing activities

Cash flows from financing activities

E5-15B (25–35 minutes)

Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation expense $ 42,500

Cash flows from investing activities

Sale of investments

Cash flows from financing activities

(b)

Free Cash Flow Analysis

Dividends (75,000) Free cash flow $217,500

E5-16B (25–35 minutes)

Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation expense $ 40,500

Decrease in inventory 13,500

Cash flows from investing activities

Sale of land 58,500

Purchase of equipment (90,000)

Cash flows from financing activities

The issuance of common stock to retire $75,000 of bonds payable is a significant noncash financing transaction which would be disclosed in notes accompanying the financial statements.

E5-16B (Continued)

(b) Current cash debt coverage ratio =

Average current liabilities

($51,000 + $70,500)/2

= 3.26 to 1

Cash debt coverage ratio =

Average total liabilities

2

= 61 to 1

Free Cash Flow Analysis

Less: Purchase of equipment (90,000) Dividends (90,000) Free cash flow $ 18,000

Gokhale has excellent liquidity Its financial flexibility is good It might be noted that it substantially reduced its long-term debt in 2014 which will help its financial flexibility.

E5-17B (25–35 minutes)

Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities

Adjustments to reconcile net income

to net cash provided by operating

activities:

Depreciation expense 15,600

Patent amortization 3,000

Increase in current assets

Cash flows from investing activities

Sale of equipment 12,000

Addition to building (32,400)

Investment in stock (19,200)

Cash flows from financing activities

Issuance of bonds 60,000

Payment of dividends (36,000)

a An additional proof to arrive at the increase in cash is provided as follows:

E5-17B (Continued)

Balance Sheet December 31, 2014

“plug” figure That is, total liabilities and stockholders’ equity is computed because information is available to determine this amount Because the total assets amount is the same as total liabilities and stockholders’ equity amount, the amount of total assets is determined Information is available to compute all the asset amounts except current assets and therefore current assets can be determined by deducting the total of all the other asset balances from the total asset balance (i.e., $661,200 – $45,000 – $241,200 – $19,200).

E5-18B (25 minutes)

Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities

Cash flows from investing activities

Sale of land 19,500

Purchase of building (30,000)

Cash flows from financing activities

The issuance of common stock to convert $25,000 of bonds payable is a significant noncash financing transaction which would be disclosed in notes accompanying the financial statements.

*Beginning retained earnings + Net income – Dividends = Ending retained earnings

Net income = $62,500

appears the company has good liquidity However, financial flexibility is poor due to the low free cash flow.