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Chapter 5: 7 (page 237)
What are the major limitations of the balance sheet as a source of information?
Balance information has some limitations because of the historical cost concept, estimations, and eliminating some items having value.
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The comparative balance sheets of Constantine Cavamanlis Inc. at the beginning and the end of the year 2017 are as follows.
CONSTANTINE CAVAMALIS INC | |||
BALANCE SHEETS | |||
Assets | Dec 31, 2017 | Jan 1, 2017 | Inc./Dec. |
Cash | \(45,000 | \)13,000 | \(32,000 Inc. |
Accounts receivable | 91,000 | 88,000 | 3,000 Inc. |
Equipment | 39,000 | 22,000 | 17,000 Inc. |
Less: Accumulated depreciation 鈥� Equipment | (17,000) | (11,000) | 6,000 Inc. |
Total | 158,000 | \)112,000 | |
Liabilities and Stockholder鈥檚 equity | |||
Account payable | \(20,000 | \)15,000 | 5,000 Inc. |
Common stock | 100,000 | 80,000 | 20,000 Inc |
Retained earnings | 38,000 | 17,000 | 21,000 Inc. |
Total | \(158,000 | \)112,000 |
Net income of \(44,000 was reported, and dividends of \)23,000 were paid in 2017. New equipment was purchased and none was sold.
Instructions
Prepare a statement of cash flows for the year 2017.
E5-12 (L03) (Preparation of a Balance Sheet) Presented below is the trial balance of Scott Butler Corporation at December 31, 2017.
Particular | Debit | Credit |
Cash | \(197,000 | |
Sales Revenue | \)8,100,000 | |
Debt investment (trading) (at cost \(145,000) | 153,000 | |
Cost of goods sold | 4,800,000 | |
Debt investment (long-term) | 299,000 | |
Equity Investment (long-term) | 277,000 | |
Notes payable (Short-term) | 90,000 | |
Account payable | 455,000 | |
Selling expenses | 2,000,000 | |
Investment revenue | 63,000 | |
Land | 260,000 | |
Buildings | 1,040,000 | |
Dividend payable | 136,000 | |
Accrued Liabilities | 96,000 | |
Accounts Receivable | 435,000 | |
Accumulated depreciation 鈥� Building | 152,000 | |
Allowance for doubtful accounts | 25,000 | |
Administrative expenses | 900,000 | |
Interest expenses | 211,000 | |
Inventory | 597,000 | |
Gain | 80,000 | |
Notes payable | 900,000 | |
Equipment | 600,000 | |
Bonds payable | 1,000,000 | |
Accumulated depreciation 鈥� Equipment | 60,000 | |
Franchises | 160,000 | |
Common stock | 1,000,000 | |
Treasury stock | 191,000 | |
Patents | 195,000 | |
Retained Earnings | 78,000 | |
Paid-in-capital in excess of par | 80,0000 | |
Total | \)12,315,000 | $12,315,000 |
Instructions Prepare a balance sheet at December 31, 2017, for Scott Butler Corporation. (Ignore income taxes.)
5. A company has purchased a tract of land and expects to build a production plant on the land in approximately five years. During the 5 years before construction, the land will be idle. Under IFRS, the land should be reported as:
(a) land expense.
(b) property, plant, and equipment.
(c) an intangible asset.
(d) a long-term investment.
Where should the following items be shown on the balance sheet, if shown at all?
(a) Allowance for doubtful accounts.
(b) Merchandise held on consignment.
(c) Advances received on sales contract.
(d) Cash surrender value of life insurance.
(e) Land.
(f) Merchandise out on consignment.
(g) Franchises.
(h) Accumulated depreciation of equipment.
(i) Materials in transit鈥攑urchased f.o.b. destination.
Grant Wood Corporation鈥檚 balance sheet at the end of 2016 included the following items.
Current assets (\(Cash 82,000) | \)235,000 | Current liabilities | \(150,000 |
Land | 30,000 | Bond payable | 100,000 |
Building | 120,000 | Common stock | 180,000 |
Equipment | 90,000 | Retained earnings | 44,000 |
Accumulated depreciation 鈥� Building | (30,000) | ||
Accumulated depreciation 鈥� Equipment | (11,000) | ||
Patents | 40,000 | ||
Total | \)474,000 | Total | \(474,000 |
The following information is available for 2017.
1. Net income was \)55,000.
2. Equipment (cost \(20,000 and accumulated depreciation \)8,000) was sold for \(10,000.
3. Depreciation expense was \)4,000 on the building and \(9,000 on equipment.
4. Patent amortization was \)2,500.
5. Current assets other than cash increased by \(29,000. Current liabilities increased by \)13,000.
6. An addition to the building was completed at a cost of \(27,000.
7. A long-term investment in stock was purchased for \)16,000.
8. Bonds payable of \(50,000 were issued.
9. Cash dividends of \)30,000 were declared and paid.
10. Treasury stock was purchased at a cost of $11,000.
Instructions
(Show only totals for current assets and current liabilities.)
(a) Prepare a statement of cash flows for 2017.
(b) Prepare a balance sheet at December 31, 2017.
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