Vol. 1, Chapter 5 – The Balance Sheet

Vol. 1, Chapter 5 ? The Balance Sheet

Problem 1: Solution

Assets Construction in progress Cash advance to affiliated co. Petty cash Trade receivables Building Cash surrender value of

life insurance Notes receivable--long-term Office supplies Land Unamortized franchise costs Organizational costs Food inventory Prepaid insurance Leasehold improvements

Major Classification Property and equipment Noncurrent receivable Current assets Current assets Property and equipment

Other assets Noncurrent receivable Current assets Property and equipment Other assets Other assets Current assets Current assets Property and equipment

Problem 2: Solution

Daytime Caf? Balance Sheet December 31, 20X6 ASSETS Current Assets: Cash Accounts Receivable Inventories Prepaid Insurance Total Current Assets Property and Equipment: Land Buildings Equipment Less: Accumulated Depreciation Net Property and Equipment Total Assets

$ 15,000 6,000

30,000 10,000 61,000

600,000 600,000 300,000 (100,000) 1,400,000 $1,461,000

The Balance Sheet

1

Problem 2: Solution (continued)

LIABILITIES AND OWNERS' EQUITY Current Liabilities:

Accounts Payable Wages Payable Mortgage Payable--current Taxes Payable

Total Current Liabilities Long-Term Liabilities:

Mortgage Payable--long-term Total Long-Term Liabilities Total Liabilities

Owners' Equity: G. Day, Capital Total Owners' Equity Total Liabilities and Owners' Equity

$ 12,000 15,000 50,000 7,000 84,000

800,000 800,000 884,000

577,000 577,000 $1,461,000

Problem 3: Solution

1. Retained Earnings decreases by $50,000. Dividends Payable increases $50,000.

2. Cash increases $10,000. Accounts Receivable decreases $10,000.

3. Equipment increases $30,000. Cash decreases $5,000. Notes Payable increases $25,000.

4. Cash increases $20,000. Inventory decreases. Retained Earnings increases.

5. Food Inventory increases $2,000. Accounts Payable increases $2,000.

6. Cash decreases $10,000. Wages Payable decreases $10,000. 7. Supplies (inventory) increases $2,000. Accounts Payable

increases $2,000. 8. Cash decreases $20,000. Treasury Stock increases $20,000.

Common Stock decreases $10,000. 9. Long-term Debt decreases $40,000. Current maturities of long

term debt increases $40,000. 10. Cash decreases $1,000. Accounts Payable decreases $1,000.

The Balance Sheet

2

Problem 4: Solution

OWNERS' EQUITY

5% Cumulative Preferred Stock, $1 par

value, authorized 50,000 shares;

issued and outstanding 10,000 shares $ 500,000 (1)

Common Stock, $1 par value, authorized

100,000 shares; issued and outstanding

20,000 shares

500,000 (2)

Retained Earnings

175,000 (3)

Total Owners' Equity

$1,175,000

(1) 10,000 shares ? $50 per share = $500,000 (2) 20,000 shares ? $25 per share = $500,000 (3) Dividends declared:

$500,000 ? 5% = $25,000 Net income - dividends declared = retained earnings

$200,000 - $25,000 = $175,000

The Balance Sheet

3

Problem 5: Solution

Damitio Inn

Balance Sheet for year ended

December 31, 20X3

Assets

Current Assets

Cash

$ 10,000

Accounts Receivable

150,000

Allowance for Doubtful Accts. (10,000)

Food Inventory

50,000

Prepaid Insurance

12,000

Total Current Assets

$212,000

Noncurrent Receivables

Investments

100,000

Property and Equipment

Land

300,000

Building

14,000,000

Equipment

800,000

Less: Accumulated depr.

Accumulated depr.--Building (2,500,000)

Accumulated depr.--Equipment (200,000)

Total Property and Equipment

12,400,000

Other Assets

Deferred Income Taxes

50,000

Organization Costs

50,000

Total Other Assets

100,000

Total Assets

$12,812,000

Liabilities

Current Liabilities

Accounts Payable

50,000

Wages Payable

20,000

Income Taxes Payable

30,000

Current Matur. of Long Term Debt 80,000

Total Current Liabilities

180,000

Long Term Debt

Net of current maturities

9,920,000

Other Long Term Liabilities

Deferred Income Taxes

150,000

Total Liabilities

$10,250,000

Owners' Equity

Common Stock

500,000

Paid-in Capital in

Excess of Par

1,000,000

Retained Earnings

1,062,000

Total Owners' Equity

2,562,000

Total Liabilities and Equity

$12,812,000

The Balance Sheet

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Problem 6: Solution Red Mountain Motel

Common-Size Balance Sheet December 31, 20X1

ASSETS Current Assets:

Cash Accounts Receivable Cleaning Supplies

Total Current Assets Property and Equipment:

Land Building Furnishings and Equipment Less: Accumulated Depreciation

Net Property and Equipment Total Assets

$ 12,500 15,000 2,500 30,000

120,000 800,000

50,000 (125,000)

845,000 $ 875,000

1.4% 1.7% 0.3% 3.4%

13.7% 91.4%

5.7% ?14.3%

96.6% 100.0%

LIABILITIES AND OWNERS' EQUITY Current Liabilities:

Notes Payable Accounts Payable Wages Payable

Total Current Liabilities Long-Term Liabilities:

Mortgage Payable Total Liabilities

Owners' Equity: R. Mountain, Capital at January 1, 20X1 Net Income for 20X1 R. Mountain, Capital at December 31, 20X1 Total Liabilities and Owners' Equity

$ 23,700 8,000 300

32,000

420,000 452,000

384,500 38,500

423,000

$ 875,000

2.7% 0.9% 0.1% 3.7%

48.0% 51.7%

43.9% 4.4%

48.3%

100.0%

Problem 7: Solution

1. Accounts Receivable Less: Allowance for Doubtful Accounts Beverage Inventory Cash Food Inventory Prepaid Insurance Notes Receivable Short-Term Investments Total Current Assets

$100,000 (3,000) 15,000 15,000 25,000 6,000 35,000 50,000

$243,000

The Balance Sheet

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