Comprehensive:
Additional information:
- 1. The company reports on the balance sheet the net book value of property and equipment and long-term liabilities (known as control accounts). The related details are disclosed in the notes.
- 2. The straight-line method is used to depreciate property and equipment based upon cost, estimated residual value, and estimated life. The costs of the assets in this account are: land, $29,500; buildings, $164,600; store fixtures, $72,600; and office equipment, $30,000.
- 3. The accumulated
depreciation breakdown is as follows: buildings, $54,600; store fixtures, $37,400; and office equipment, $17,300. - 4. The long-term debt includes 12%, $36,000 face
value bonds that mature on December 31, 2021, and have an unamortized bond discount of $1,000; 11%, $48,000 face value bonds that mature on December 31, 2022, have a premium on bonds payable of $1,800, and whose retirement is being funded by a bond sinking fund; and a 13% note payable that has a face value of $6,200 and matures on January 1, 2019. - 5. The non-interest-bearing note receivable matures on June 1, 2020.
- 6. Inventory is listed at lower of cost or market; cost is determined on the basis of average cost.
- 7. The investment in affiliate is carried at cost. The company has guaranteed the interest on 12%, $50,000, 15-year bonds issued by this affiliate, Jay Company.
- 8. Common stock has a $10 par value per share, 10,000 shares are authorized, and 1,000 shares were issued during 2016 at a price of $13 per share, resulting in 8,000 shares issued at year-end.
- 9.
Preferred stock has a $50 par value per share, 2,000 shares are authorized, and 140 shares were issued during 2016 at a price of $55 per share, resulting in 640 shares issued at year-end. - 10. On January 15, 2017, before the December 31, 2016, balance sheet was issued, a building with a cost of $20,000 and a book value of $7,000 was totally destroyed. Insurance proceeds will amount to only $5,000.
- 11. Net income and dividends declared and paid during the year were $50,500 and $21,000, respectively.
Required:
- 1. Prepare Stone Boat’s December 31, 2016, balance sheet (including appropriate parenthetical notations).
- 2. Prepare a statement of shareholders’ equity for 2016. (Hint: Work back from the ending account balances.)
- 3. Prepare notes that itemize the balance sheet control accounts and those necessary to disclose any company accounting policies,
contingent liabilities , and subsequent events. - 4. Next Level Compute the debt-to-assets ratio at the end of 2016. What is your evaluation of this ratio if it was 39% at the end of 2015?
Use the following information for P4-15 and P4-16:
McCormick & Company, Inc. is one of the world’s leading producers of spices, herbs, seasonings, condiments, and other flavorings for foods. Its products are sold to consumers, with some of the leading brands of spices and seasonings, as well as to industrial producers of foods. McCormick’s consolidated balance sheets for 2012 and 2013 follow.
1.
Prepare a balance sheet for S Boat Company as of December 31, 2016.
Explanation of Solution
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.
Prepare a balance sheet for S Boat Company as of December 31, 2016.
Table (1)
2
Prepare a statement of shareholders’ equity for the year 2016.
Explanation of Solution
Statement of Stockholders’ Equity:
Statement of Stockholders’ Equity is prepared to find out the changes and ending balance of contributed capital, treasury stock, retained earnings, and other comprehensive income in the business. The amount of stockholders’ equity is increased by issuance of stock and net income of the company and decreased by the payment of dividends and repurchase of treasury stock.
Prepare a statement of shareholders’ equity for the year 2016.
Table (2)
Working notes:
Determine the amount of common stock issued at par, during 2016.
Determine the amount of preference stock issued at par, during 2016.
Determine the amount of additional paid-in common stock, during 2016.
Determine the amount of additional paid-in preferred stock, during 2016.
Note: Statement of retained earnings is prepared back from ending accounts balances.
3.
Prepare notes that itemize the balance sheet control accounts, and explain how it will help to disclose any company accounting policies, contingent liabilities and subsequent events.
Explanation of Solution
Note 1:
Summary of significant accounting policies:
- Inventories are recorded at market price or cost price whichever is less.
- Straight line method is followed for depreciation of property, plant, and equipment based upon cost, estimated residual value, and useful life.
Note 2:
Guarantee to affiliate:
The company has been guaranteed by the affiliate Company J that it will be paid 12% interest on $50,000, 15-year bond.
Note 3:
Components of inventories:
The amount of inventories reported in the balance sheet is made up of the following components:
Table (3)
Note 4:
Components of long-term liabilities:
The amount of long-term liabilities reported in the balance sheet is made up of the following components:
Table (4)
Note 5:
Subsequent event:
On January 15, 2017, a building was totally destroyed. Its cost and book value are $20,000 and $7,000 respectively. However, insurance proceeds will amount to $5,000. This event has not been recorded in the balance sheet, as this event has been occurred after the balance sheet date.
4.
Determine debt-to-assets ratio of S Boat Company at the end of the year 2016.
Explanation of Solution
Debt-to-assets ratio:
Debt to assets ratio provides the relationship between the total liabilities and total assets. It helps the company to determine the amount of debt used to finance the assets.
The following formula is used to calculate debt-to-assets ratio:
Determine debt-to-assets ratio of S Boat Company at the end of the year 2016:
Hence, the debt-to-assets ratio of S Boat Company at the end of the year 2016 is 42.4%.
Evaluation:
If the debt-to-assets ratio is 39% at the end of 2015, then it has been increased by over 3% in 2016. An increase in this ratio indicates that the investors and creditors risk is increased, because a higher payment of interest has to be made by the company. The shareholder gets benefited, if the company generates a higher return on the additional debt equity than the interest paid.
Want to see more full solutions like this?
Chapter 4 Solutions
Intermediate Accounting: Reporting and Analysis
- Balance Sheet and Notes Listed here in random order are Wicks Construction Limiteds balance sheet accounts and related ending balances as of December 31, 2019: Additional information: 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. The straight line method is used to depreciate buildings, machinery, and equipment, based upon their cost and estimated residual values 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. Patents are amortized on a straight line basis directly to the Patent account. 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. Common stock has a 10 par value per share, 12,000 shares are authorized, and 6,280 shares have been issued. 6. Preferred stock has a 100 par value per share, 1,000 shares are authorized, and 400 shares have been issued. 7. The investment in bonds is carried at the original cost, which is the face value, and is being held to maturity. 8. Short-term investments in marketable securities were purchased at year-end. 9. The bonds payable mature on December 31, 2024. 10. The company attaches a 1-year warranty on all the products it sells. Required: 1. Prepare Wicks Constructions December 31, 2019, balance sheet (including appropriate parenthetical notations). 2. Prepare notes to accompany the balance sheet that itemize company accounting policies; inventories; and property, plant, and equipment. 3. Next Level Compute the current ratio and the quick ratio. How do these two ratios provide different information about the companys liquidity? Why are these ratios useful?arrow_forwardReading and Interpreting Chipotles Financial Statements Refer to the financial statements for Chipotle reproduced in the chapter and answer the following questions. What was the companys net income for 2014? State Chipotles financial position on December 31, 2014, in terms of the accounting equation. By what amount did Leasehold improvements, property and equipment, net, increase during 2014? Explain what would cause an increase in this item.arrow_forwardDepreciation Expense During 2016, Carter Company acquired three assets with the following costs, estimated useful lives, and estimated salvage values: The company uses the straight-line method to depreciate all assets and computes depreciation to the nearest month. For example, the computer system will be depreciated for six months in 2016. Required Compute the depreciation expense that Carter will record on each of the three assets for 2016. Comment on the following statement: Accountants could save time and money by simply expensing the cost of long-term assets when they are purchased. In addition, this would be more accurate because depreciation requires estimates of useful life and salvage value.arrow_forward
- Consider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year). A. A business depreciates a building with a book value of $12,000, using straight-line depreciation, no salvage value, and a remaining useful life of six years. B. An organization has a line of credit with a supplier. The company purchases $35,500 worth of inventory on credit. Terms of purchase are 3/20, n/60. C. An employee earns $1,000 in pay and the employer withholds $46 for federal income tax. D. A customer pays $4,000 in advance for legal services. The lawyer has previously recognized 30% of the services as revenue. The remainder is outstanding.arrow_forwardThe comparative balance sheet of Del Ray Enterprises Inc. at December 31, 2016 and 2015, is as follows: Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2016 are as follows:a. Net income, $332,000b. Depreciation reported on the income statement, $83,400c. Equipment was purchased at a cost of $162,800 and fully depreciated equipment costing $44,800 was discarded, with no salvage realized.d. The mortgage note payable was not due until 2018 but the terms permitted earlier payment without penalty.e. 10,000 shares of common stock were issued at $20 for cash.f. Cash dividends declared and paid, $153,600InstructionsPrepare a statement of cash flows, using the indirect method of presenting cash flows from operating activitiesarrow_forwardThe Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2016. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): Depreciation is computed from the first of the month of acquisition to the first of the month of disposition. Land A and Building A were acquired from a predecessor corporation. Thompson paid $712,500 for the land and building together. At the time of acquisition, the land had a fair value of $96,000 and the building had a fair value of $704,000. Land B was acquired on October 2, 2016, in exchange for 2,000 newly issued shares of…arrow_forward
- A company maintains its fixed assets at cost. Depreciation provision accounts for each asset are kept. At 31st December 2018 the position was as follows: (1) The following additions were made during the financial year ended 31st December 2019: machinery ₤2,480, office furniture ₤320. (2) Some old machines bought in 2015 for ₤2,800 were sold for ₤800 during the year. (3) The rates of depreciation are: machinery - 10 per cent, office equipment - 5 per cent, using the straight line basis, calculated on the assets in existence at the end of each financial year irrespective of date of purchase. Required:Show the asset and depreciation accounts for the year ended 31st December 2019 and the statement of financial position entries (extract) at that date.arrow_forwardAccounting standard IAS16: Property, Plant and Equipment make a number of recognition, measurement and disclosure requirements with regard to tangible non-current assets. The term "non-current asset" is defined in accounting standard IAS1: Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts by 31 December. Tom Limited: Joy Plc bought a factory machine on 30 June 2020 and paid a total of £420,000. The supplier's invoice showed that this sum was made up of the following items: £ Manufacturer's list price 380,000 Less: Trade discount 38,000 342,000 Delivery charge 6,800 Installation costs 29,600 Maintenance charge for a year to 30 June 2021 27,000 Small spare parts 14,600 £420,000 Jerry Limited: On 1 January 2010, Jerry Ltd bought freehold property for £800,000. This figure was made up of land £300,000 and buildings £500,000. The land was non-depreciable…arrow_forwardAccounting standard IAS16: Property, Plant and Equipment make a number of recognition, measurement and disclosure requirements with regard to tangible non-current assets. The term "non-current asset" is defined in accounting standard IAS1: Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts by 31 December. Tom Limited: Joy Plc bought a factory machine on 30 June 2020 and paid a total of £420,000. The supplier's invoice showed that this sum was made up of the following items: £ Manufacturer's list price 380,000 Less: Trade discount 38,000 342,000 Delivery charge 6,800 Installation costs 29,600 Maintenance charge for a year to 30 June 2021 27,000 Small spare parts 14,600 £420,000 Jerry Limited: On 1 January 2010, Jerry Ltd bought freehold property for £800,000. This figure was made up of land £300,000 and buildings £500,000. The land was non-depreciable…arrow_forward
- REQUIRED: A. Based on the application of the necessary procedures and appreciation of the above data, you are to provide the answers to the following: 1. What is the gain on sale of truck on September 30? 2. What is the gain on sale of machinery on December 20? 3. What is the adjusted balance of the cost of property, plant and equipment as of December 31, 2022? 4. What is the total depreciation expense for the year ended December 31, 2022? 5. What is the carrying amount of the property, plant and equipment as of December 31, 2022? B. Show the lapsing schedule as of December 31, 2022.arrow_forwardParts B and C is where the assistance is needed The balance sheets of HiROE Inc. showed the following at December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Equipment, less accumulated depreciation of $212,625 at December 31, 2020, and $151,875 at December 31, 2019. $ 273,375 $ 334,125 If there have not been any purchases, sales, or other transactions affecting this equipment account since the equipment was first acquired, what is the amount of the depreciation expense for 2020? Assume the same facts as in part a, and assume that the estimated useful life of the equipment to HiROE Inc., is eight years and that there is no estimated salvage value. Determine: What the original cost of the equipment was. What depreciation method is apparently being used. When the equipment was acquired. Assume that this equipment account represents the cost of 5 identical machines. Prepare the horizontal model and record the journal entry for the sale of the…arrow_forward1. Case: The accounts and balances shown below were gathered from Clown Company's trial balance on December 31, 2017. All adjusting entries have been made. Property, plant and equipment, P500,000; biological assets, P200,000; Goodwill on combination, P300,000; Identifiable intangible assets, P150,000; Investment property, P200,000; Investment in associates, P200,000; Available for sale investments, P100,000; Inventories P200,000; Trade and other receivables, P300,000; Financial assets at fair value through profit or loss, P150,000; Cash and cash equivalents, P100,000; Share capital P800,000; Other reserves, P300,000; Retained profits, P250,000; Non-controlling interest, P250,000; Long-term borrowings, P200,000; Deferred tax, P50,000; Long-term provisions, P100,000; Trade and other payables, P200,000; Short-term borrowings, P50,000; Current portion of long-term borowngs, P30,000; Curent tax payable, P150,000 and Short-term provisions, P20,000. 1.1. The accounts and balances shown below…arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College