Intermediate Accounting w/ Annual Report; Connect Access Card
Intermediate Accounting w/ Annual Report; Connect Access Card
8th Edition
ISBN: 9781259546860
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 3, Problem 3.8P
To determine

Balance sheet:

This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the components of balance sheet are assets, liabilities and shareholders’ equity.

To prepare: Complete, corrected, classified balance sheet.

Expert Solution & Answer
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Explanation of Solution

Prepare a classified balance sheet of Company SM as on December 31, 2016.

Company SM
Balance sheet
At December 31, 2016
Amount (in $) Amount (in $)
Assets
Current assets:
Cash 1,250
Short term investments 3,000
Accounts receivables     (1) 3,100
Inventories      (2) 8,250
Prepaid expenses 1,200
Total current assets 16,800
Property, plant and equipment:
Equipment 15,000
 less: accumulated depreciation 4,200
Net property, plant and equipment 10,800
Intangible assets
Patents (6) 5,400
Total assets 33,000
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 5,200
Note payable      (3) 1,000
Interest payable - note 100
Deferred revenue      (4) 1,500
Interest payable - bonds 200
Total current liabilities 8,000
Long term liabilities
Bonds payable 5,500
Note payable      (3) 1,500
Deferred revenue      (4) 3,000
Total long term liabilities 10,000
Total liabilities 18,000
Shareholders' equity
Common stock, no par,250,000 shares issued and outstanding     (5)      10,000
Retained earnings   (5)      5,000
Total shareholders' equity 15,000
Total liabilities and shareholders' equity 33,000

Table (1)

Working notes:

  1. 1. Compute accounts receivables balance at December 31, 2016.
  • (Accounts receivables at December 31, 2018)=(Accounts receivableAllowance for                       uncollectible accounts) =$3,500$400 =$3,100

  1. 2. Compute inventory balance at December 31, 2016.
  • (Inventory at December 31, 2018)=(Finishedgoods+RawmaterialandWorkInProgress) =($6,000+$2,250) =$8,250

  1. 3. Note payable at December is $4,000. The note payable is due in annual installments of $1,000 each. Thus, $1,000 is reported as a current liability and remaining $3,000 is reported as long term liability.
  1. 4. Deferred revenue at December 31, 2016 is $3,000. It will be recognized as revenue equally over the next two fiscal years. Thus, $1,500 (half of the $3,000) is reported as current liability and remaining $1,500 reported as long term liability.
  1. 5. Calculate common stock and retained earnings.
  • Debt to equity ratio = 1.2Liabilities ÷ Equity = 1.2$18,000 ÷ Equity =1.2Equity = $18,000 ÷ 1.2 = $15,000

  • Therefore Equity is $15,000. It includes common stock and retained earnings

    Compute retained earnings at December 31, 2016.

  • (RetainedearningsatDecember31,2016)=(RetainedearningsatDecember31,2015+netincomefor2016-dividendspaid) =$4,000+$1,560$560 =$5,000

  • Compute Common stock at December 31, 2018.

  • Equity = Common stock + Retained earnings$15,000=Common stock + $5,000Common stock = $15,000 - $5,000 = $10,000

  1. 6. Calculate patents at December 31, 2018.
  • Assets=Equity+LiabilitiesAllotherassets+Patents=Equity+Liabilities$27,600+Patents=$15,000+$18,000Patents=$15,000+$18,000$27,600Patents=$5,400

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Chapter 3 Solutions

Intermediate Accounting w/ Annual Report; Connect Access Card

Ch. 3 - Disclosure notes are an integral part of the...Ch. 3 - A summary of the companys significant accounting...Ch. 3 - Define a subsequent event.Ch. 3 - Prob. 3.14QCh. 3 - Prob. 3.15QCh. 3 - Prob. 3.16QCh. 3 - Prob. 3.17QCh. 3 - Show the calculation of the following solvency...Ch. 3 - Prob. 3.19QCh. 3 - Prob. 3.20QCh. 3 - (Based on Appendix 3) Segment reporting...Ch. 3 - Prob. 3.22QCh. 3 - Prob. 3.23QCh. 3 - Current versus long-term classification LO32,...Ch. 3 - Prob. 3.2BECh. 3 - Prob. 3.3BECh. 3 - Prob. 3.4BECh. 3 - Prob. 3.5BECh. 3 - Prob. 3.6BECh. 3 - Balance sheet preparation; missing elements LO32,...Ch. 3 - Financial statement disclosures LO34 For each of...Ch. 3 - Prob. 3.9BECh. 3 - Prob. 3.10BECh. 3 - Calculating ratios; solving for unknowns LO38 The...Ch. 3 - Prob. 3.1ECh. 3 - Prob. 3.2ECh. 3 - Prob. 3.3ECh. 3 - Prob. 3.4ECh. 3 - Prob. 3.5ECh. 3 - Prob. 3.6ECh. 3 - Prob. 3.7ECh. 3 - Prob. 3.8ECh. 3 - Prob. 3.9ECh. 3 - Financial statement disclosures LO34 The...Ch. 3 - Prob. 3.11ECh. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - FASB codification research LO32, LO34 Access the...Ch. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Prob. 3.18ECh. 3 - Prob. 3.19ECh. 3 - Effect of management decisions on ratios LO38...Ch. 3 - Prob. 3.21ECh. 3 - Prob. 3.22ECh. 3 - Prob. 1CPACh. 3 - Prob. 2CPACh. 3 - Prob. 3CPACh. 3 - Prob. 4CPACh. 3 - Prob. 5CPACh. 3 - Prob. 6CPACh. 3 - Prob. 7CPACh. 3 - Prob. 8CPACh. 3 - Prob. 1CMACh. 3 - Prob. 2CMACh. 3 - Prob. 3CMACh. 3 - Balance sheet preparation LO32, LO33 Presented...Ch. 3 - Prob. 3.2PCh. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Prob. 3.8PCh. 3 - Prob. 3.9PCh. 3 - Prob. 3.10PCh. 3 - Communication Case 31 Current versus long-term...Ch. 3 - Analysis Case 32 Current versus long- term...Ch. 3 - Prob. 3.4BYPCh. 3 - Prob. 3.5BYPCh. 3 - Prob. 3.6BYPCh. 3 - Prob. 3.7BYPCh. 3 - Prob. 3.8BYPCh. 3 - Prob. 3.9BYPCh. 3 - Prob. 3.11BYPCh. 3 - Analysis Case 3–14 Balance sheet information LO3–2...Ch. 3 - Prob. 3.15BYPCh. 3 - Ethics Case 316 Segment reporting Appendix 3 You...
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