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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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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:

Chapter 4, Problem 13P, Balance Sheet and Notes Listed here in random order are Wicks Construction Limiteds balance sheet

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?

1.

To determine

Prepare the balance sheet of Company W for December 31, 2019.

Explanation

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 main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

The balance sheet of company W is prepared as follows:

Company W
Balance Sheet
December 31,2019
Current Assets:Amount ($)Amount ($)Amount ($)
Cash $11,600 
Short-term investments in marketable securities [Refer to subpart 2 (note 1)]  $19,100 
Accounts receivable$32,300  
Less: Allowance for doubtful accounts($1,500)$30,800 
Inventories [Refer to subpart 2 (Notes 1 and 2) ] $98,500 
Total current assets  $160,000
Long-Term Investments:   
Investment in bonds [Refer to subpart 2 (note 1)] $25,000 
Land held for building site $19,500 
Cash surrender value of life insurance $8,900 
Total long-term investments  $53,400
Property, plant, and equipment [Refer to subpart 2 (Notes 1 and 3) ]  $229,300
Intangible Assets:   
Patents (net) [Refer to subpart 2 (Notes 1 and 2) ]  $18,200
Total Assets  $460,9...

2.

To determine

Prepare notes to accompany the balance sheet that itemize company accounting policies, inventories, and property, plant and equipment.

3.

To determine

Compute the current ratio and the quick ratio, state the way in which the two ratios provide different information about the liquidity of the company and explain the way in which these ratios are useful.

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