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Worksheet 2: Problem A - Balance Sheet
SnackTastics's Corp. makes and distributes snacks and beverages which are sold in
kiosks at malls, entertainment venues and big-box stores. Below is a list of all of their
accounts as of December 31, 2013:
10% Bonds, 20-year bonds, due 12/31/2020
Accounts Payable
Accounts Receivable
Accumulated Amortization - Patent
Accumulated Amortization - Trademark
Accumulated Depreciation - Building
Accumulated Depreciation - Equipment
Additional Paid-in Capital - preferred stock
Additional Paid-in-Capital, common stock
Advertising Expense
Allowance for Doubtful Accounts
Amortization Expense
Bad Debt Expense
Building
Cash
Common Stock ($5 par)
Cost of Goods Sold
Depreciation Expense (Building & Equipment)
Discount on Bonds Payable
Dividend Revenue
Dividends
Equipment
Income Tax Expense
Interest Expense
Interest Revenue
Inventories
Investment in Ferrari Corp stock
Investment in Sampson Corp stock
Investment in Durango Corp bonds
Land
Long-term Notes Payable
Patent
Preferred Stock, ($10 par)
Rent Expense
Retained Earnings
800,000
83,750
352,400
34,920
34,650
120,000
60,000
28,000
150,000
86,700
15,250
7,030
9,750
1,020,500
1,354,600
300,000
129,850
35,000
73,010
3,280
55,000
365,000
242,903
124,268
8,490
374,500
41,250
48,750
51,500
585,000
677,500
77,600
100,000
88,650
?
Sales
Short-Term Notes Payable
Supplies (office)
Supplies Expense
Trademark
Unrealized holding gain - equity
Utilities Expense
Wages Expense
Wages Payable
1,554,600
336,870
27,850
47,750
63,000
3,350
22,660
255,640
42,000
Additional information:
a. The building had a $220,500 salvage value and a 50 year useful life, however,
SnackTastics, Inc. only expected to use the building for 40 years. The building
was purchased on Jan 1, 2008. SnackTastics uses the straight-line method for
depreciation purposes.
b. The company had purchased 1,000 shares of Sampson Company stock three
years ago for a total of $37.50 per share. They intended to hold the Sampson
Company stock for a while, although the exact holding period was undetermined.
Non-Current Asset - Long Term Investment
c. SnackTastics Corp. purchased 10,000 shares of Ferrari Corp stock two weeks
ago for a total of $41,250. They expect to sell Ferrari Company stock as soon as
it reaches $4.50 per share, which is expected to happen in the next two months.
Short Term Investment – Available for Sale
d. SnackTastics purchased the 10-year bonds of Durango Corp. last year. They plan
to hold them for two or three years, at which time they hope to sell them and
make a profit. Non-Current Asset - Long Term Investment
e. Upon further evaluation, it was determined that $180,000 of the land was not
being used in operations.
f. SnackTastics Corp. had pledged $18,200 of Accounts Receivable as collateral
against a $15,000 loan it obtained from First National Bank.
g. The value of the inventories was determined using the lower of cost, using LIFO,
or market.
h. SnackTastics had $172,000 of inventory out on consignment with Stadium
Concessions Corp.
? Total Inventory = 374,500 + 172,000 = $546,500
i. The interest expense includes interest on the bonds and notes payable,
depreciation expense includes depreciation on both the building and equipment
and amortization expense includes amortization on both the Trademark and
Patent.
j. The company is authorized to issue 100,000 shares of common stock and
25,000 shares of preferred stock. There have been no additional issuances of
stock, nor have there been any repurchases of stock since the initial issuance.
k. The unrealized holding gain reported above pertains to the Available-for-Sale
security(ies) and must be reported in the equity section of the Balance Sheet.
You do not need to do a statement of comprehensive income for this problem.
Required: (You MUST show all work to receive full credit)
1. Prepare a classified balance sheet in good form, including all disclosures.
Prepaid Expenses:
Utilities Expense: 22,660
Supplies Expense: 47,750
Wages Expense: 255,640
Advertising Expense: 86,700
Rent Expense: 88,650
Total Prepaid Expenses: $501,400
2. What was the beginning Retained Earnings amount (as of December 31st,
2012?) Hint: You need to find net income to solve for this.
3. What is the difference between authorized, issued and outstanding shares of
stock?
? Authorized shares are the number of stock units that a publicly traded
company can issue.
? Issued shares of stock are the number of authorized shares that is sold to
and held by the shareholders of a company. Issued shares include the
stock that a company sells publicly in order to generate capital.
? Outstanding shares are a company’s stock currently held by all its
shareholders, including share blocks held by institutional investors and
restricted shared owned by the company’s officers and insiders.
4. What principle, constraint or assumption dictates that we record inventories at
the lower of cost or market?
5. What is the company's current ratio? Show formula & answer.
6. What are the NET assets of the business? Show formula & answer.
Hints:
Problem One:
a) Separate the accounts into Income Statement, Retained Earnings and Balance
Sheet accounts. (I usually highlight mine in different colors, but you are free to
use whatever method works best for you).
b) Determine the Accumulated Depreciation for the building before solving for
ending Retained Earnings.
c) Remember, your Balance Sheet “equation” is the same as the Accounting
Equation.
d) To solve for beginning Retained Earnings, you first need to solve for ending
Retained Earnings and then work backwards.
e) You will only need to adjust the balance in one balance sheet account and add
one balance sheet account for this problem.
f) See pages 218 and 221 of the loose leaf, 15 th edition of the text for help on how
to classify the various Investments.
g) Financial ratios can be found on page 246 of the loose-leaf, 15 th edition of the
text.
Problem B: Statement of Cash Flows:
Billingsley Company presented the following comparative financial data at December
31, 2013:
December 31
2013
Cash
Accounts
receivable
Building and
Equipment
Accumulated
Depreciation
Total assets
Accounts
payable
Dividends
payable
Common stock
Additional paid
in capital
Retained
earnings
Total liabilities
and stockholders'
equity
$10,000
2012
$
91,000
300,000
2
60,000
$341,000
$2
$55,000
$
42,000
110,000
1
60,000
74,000
$341,000
$2
Additional information for the year 2013:
a. Equipment costing $80,000 was sold at a $1,000 gain and was 30 percent
depreciated at the time of sale
b. Depreciation expense was recorded.
c. Net income was $75,000.
Required
1. In good form, prepare the operating section of the statement of cash flows for
2013 using the INDIRECT METHOD.
2. Can a company have positive net income and negative cash flows or negative
income and positive cash flows? Why or why not?
Hints:
Problem 2
a) You are only dealing with the operating section of the Statement of Cash flows for
this problem, so concentrate on the accounts that affect that section.
b) Do a T-account for Equipment and one for the Accumulated Depreciation
accounts to help determine the depreciation expense for the period.
c) Question 2 was covered in chat, so be sure to review the archive if you missed it.
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