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Chapter 5: Question 1IFRS (page 262)
IFRS5-1 Where can authoritative IFRS guidance be found related to the statement of financial position (balance sheet) and the statement of cash flows?
IAS 1 and IAS 7 states the disclosure requirements of the statement of financial position and cash flow statement.
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IFRS5-3 Briefly describe the convergence efforts related to financial statement presentation.
Hawthorn Corporation鈥檚 adjusted trial balance contained the following accounts at December 31, 2017: Retained Earnings \(120,000, Common Stock \)750,000, Bonds Payable \(100,000, Paid-in Capital in Excess of Par鈥擟ommon Stock \)200,000, Goodwill \(55,000, Accumulated Other Comprehensive Loss \)150,000, and Noncontrolling Interest $35,000. Prepare the stockholders鈥� equity section of the balance sheet.
Early in January 2018, Hopkins Company is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2017.
Debit \( | Credit \) | |
Cash | \(75,000 | |
Accounts receivable (net) | 38,500 | |
Inventory (net) | 65,300 | |
Equipment (net) | 84,000 | |
Patent | 15,000 | |
Notes and Accounts payable | \)52,000 | |
Note payable (due 2019) | 75,000 | |
Common stock | 100,000 | |
Retained earnings | 50,800 | |
\(277,800 | \)277,800 |
Except for the following items, Hopkins has recorded all adjustments in its accounts.
1. Cash includes \(500 petty cash and \)15,000 in a bond sinking fund.
2. Net accounts receivable is comprised of \(52,000 in accounts receivable and \)13,500 in allowance for doubtful accounts.
3. Equipment had a cost of \(112,000 and accumulated depreciation of \)28,000.
4. On January 8, 2018, one of Hopkins鈥� customers declared bankruptcy. At December 31, 2017, this customer owed Hopkins \(9,000.
Accounting
Prepare a corrected December 31, 2017, balance sheet for Hopkins Company.
Analysis
Hopkins鈥� bank is considering granting an additional loan in the amount of \)45,000, which will be due December 31, 2018. How can the information in the balance sheet provide useful information to the bank about Hopkins鈥� ability to repay the loan?
Principles
In the upcoming meeting with the bank, Hopkins plans to provide additional information about the fair value of its equipment and some internally generated intangible assets related to its customer lists. This information indicates that Hopkins has significant unrealized gains on these assets, which are not reflected on the balance sheet. What objections is the bank likely to raise about the usefulness of this information in evaluating Hopkins for the loan renewal?
Case 3: Deere & Company Presented below is the SEC-mandated disclosure of contractual obligations provided by Deere & Company in a recent annual report. Deere & Company reported current assets of \(50,060 and total current liabilities of \)21,394 at year-end. (All dollars are in millions.)
Aggregate Contractual Obligations
The payment schedule for the company鈥檚 contractual obligations at year-end in millions of dollars is as follows:
Total | Less than 1 year | 1-3 Years | 4 and 5 Years | More than 5 Years | |
Debt | |||||
Equipment Operations | \( 5,091 | \) 434 | \( 270 | \)775 | \( 3,612 |
Financial services | 31,692 | 9,962 | 11,477 | 6,578 | 3,675 |
Total | 36,783 | 10,396 | 11,747 | 7,353 | 7,287 |
Interest on debt | 4,777 | 609 | 1,069 | 745 | 2,354 |
Account payable | 2,743 | 2,611 | 90 | 39 | 3 |
Capital lease | 87 | 39 | 42 | 4 | 2 |
Purchase obligations | 3,007 | 2,970 | 37 | 0 | 0 |
Operating leases | 371 | 121 | 134 | 70 | 46 |
Total | \) 47,768 | \( 16,746 | \)13,119 | 8,211 | 9,692 |
Instructions
(a) Compute Deere & Company鈥檚 working capital and current ratio (current assets 梅 current liabilities) with and without the off-balance-sheet contractual obligations reported in the schedule.
(b) Briefly discuss how the information provided in the contractual obligation disclosure would be useful in evaluating Deere & Company for loans (1) due in one year and (2) due in five years.
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?
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