Textbook Problem

Balance Sheet and Notes Listed here in random order are Wicks Construction Limited’s balance sheet accounts and related ending balances as of December 31, 2019:

Additional information:

1. 1. The company reports on the balance sheet the total amount for inventories and the net book value of property, plant, and equipment, with the related details for each account disclosed in notes.
2. 2. The straight line method is used to depreciate buildings, machinery, and equipment, based upon their cost and estimated residual value’s and lives. A breakdown of property, plant, and equipment shows the following: land at a cost of $32,000, buildings at a cost of $182,400 and a net book value of $120,200, machinery at a cost of $63,900, and related accumulated depreciation of $18,600, and equipment (40% depreciated) at a cost of $53,000.
3. 3. Patents are amortized on a straight line basis directly to the Patent account.
4. 4. Inventories are listed at the lower of cost or market value using an average cost. The inventories include raw-materials, $22,200; work in process, $34,700; and finished goods, $41,600.
5. 5. Common stock has a $10 par value per share, 12,000 shares are authorized, and 6,280 shares have been issued.
6. 6. Preferred stock has a $100 par value per share, 1,000 shares are authorized, and 400 shares have been issued.
7. 7. The investment in bonds is carried at the original cost, which is the face value, and is being held to maturity.
8. 8. Short-term investments in marketable securities were purchased at year-end.
9. 9. The bonds payable mature on December 31, 2024.
10. 10. The company attaches a 1-year warranty on all the products it sells.

Required:

1. 1. Prepare Wicks Construction’s December 31, 2019, balance sheet (including appropriate parenthetical notations).
2. 2. Prepare notes to accompany the balance sheet that itemize company accounting policies; inventories; and property, plant, and equipment.
3. 3. Next Level Compute the current ratio and the quick ratio. How do these two ratios provide different information about the company’s liquidity? Why are these ratios useful?