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Chapter 5: 4 (page 237)
Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.
Two estimates that will affect the usefulness of the balance sheet information are:
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Question: E5-3 (L02,3) (Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.
(a) Current assets | (g) Long-term liabilities |
(b) Investments | (h) Capital stock |
(c) Property, plant, and equipment | (i) Equity attribute to non-controlling interest |
(d) Intangible assets | (i) paid-in-capital in excess of par |
(e) Other assets | (k) Retained earnings |
(f) Current liabilities |
Instructions
Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter 鈥淣鈥� to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter 鈥淴.鈥�
1. Prepaid insurance.
2. Stock owned in affiliated companies.
3. Unearned service revenue.
4. Advances to suppliers.
5. Unearned rent revenue.
6. Preferred stock.
7. Additional paid-in capital on preferred stock.
8. Copyrights.
9. Petty cash fund.
10. Sales taxes payable.
11. Accrued interest on notes receivable.
12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)
13. Machinery retired from use and held for sale.
14. Fully depreciated machine still in use.
15. Accrued interest on bonds payable.
16. Salaries that company budget shows will be paid to employees within the next year.
17. Discount on bonds payable. (Assume related to bonds payable in item 12.)
18. Accumulated depreciation鈥攂uildings.
19. Shares held by non-controlling stockholders.
Net income for the year for Carrie, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. What might account for the difference?
E5-10 (L02,3) (Current Liabilities) Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year.
(a) On December 20, 2017, a former employee filed a legal action against Baylor for \(100,000 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.
(b) Bonuses to key employees based on net income for 2017 are estimated to be \)150,000.
(c) On December 1, 2017, the company borrowed \(600,000 at 8% per year. Interest is paid quarterly.
(d) Accounts receivable at December 31, 2017, is \)10,000,000. An aging analysis indicates that Baylor鈥檚 expense provision for doubtful accounts is estimated to be 3% of the receivables balance.
(e) On December 15, 2017, the company declared a \(2.00 per share dividend on the 40,000 shares of common stock outstanding, to be paid on January 5, 2018.
(f) During the year, customer advances of \)160,000 were received; $50,000 of this amount was earned by December 31, 2017.
Instructions For each item above, indicate the dollar amount to be reported as a current liability. If a liability is not reported, explain why.
IFRS5-1 Where can authoritative IFRS guidance be found related to the statement of financial position (balance sheet) and the statement of cash flows?
What is working capital? How does working capital relate to the operating cycle?
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