Deck 3: The Balance Sheet and Notes to the Financial Statements

Question 1

In order for a liability to exist,

A)there must be a past transaction or event.
B)the exact amount must be known.
C)the identity of the party to whom the liability is owed must be known.
D)there must be an obligation to pay cash in the future.

Answer 1

A

Question 2

Which of the following characteristics may result in the classification of a liability being changed from current to noncurrent?

A)Violation of a subjective acceleration clause
B)Violation of an objective acceleration clause
C)A demand provision for payment
D)Refinancing after the balance sheet date

Answer 2

D

Question 3

Which of the following would NOT be classified as a current liability on a classified balance sheet?

A)Unearned revenue
B)Mandatory redeemable preferred stock
C)The currently maturing portion of long-term debt
D)Accrued salaries payable to management

Answer 3

B

Question 4

The correct order to present current assets is

A)cash, inventories, prepaid items, accounts receivable.
B)cash, inventories, accounts receivable, prepaid items.
C)cash, accounts receivable, prepaid items, inventories.
D)cash, accounts receivable, inventories, prepaid items.

Question 5

Pending litigation would generally be considered a(n)

A)nonmonetary liability.
B)contingent liability.
C)estimated liability.
D)current liability.

Question 6

Which of the following statements regarding assets is NOT true?

A)An asset represents a probable future economic benefit.
B)Assets are obtained or controlled as a result of past or probable future transactions or events.
C)Assets reported on the balance sheet include both monetary and nonmonetary resources.
D)Assets include costs that have not yet been matched with revenues.

Question 7

Which of the following would NOT be reported for capital stock in the contributed capital section of a classified balance sheet?

A)Dividends per share
B)Shares authorized
C)Shares issued
D)Shares outstanding

Question 8

Which of the following would NOT be classified as a current asset on a classified balance sheet?

A)Investment securities (trading)
B)Short-term investments
C)Intangible assets
D)Prepaid expenses

Question 9

Which of the following would NOT be considered an element of working capital?

A)Investment securities (current)
B)Work in process inventories
C)Accrued interest on notes payable
D)Organization costs

Question 10

How should a contingent liability be reported in the financial statements when it is "reasonably possible" the company will have to pay the liability at a future date?

A)As a deferred liability
B)As an accrued liability
C)As a disclosure only
D)As an account payable with an additional disclosure explaining the nature of the transaction

Question 11

Which of the following is NOT a long-term investment?

A)Stock held to exert influence on another company
B)Land held for speculation
C)Trademarks
D)Cash surrender value of life insurance

Question 12

A contingent liability should be recorded when

A)any lawsuit is actually filed against a company.
B)it is certain that funds are available to pay the amount of the claim.
C)it is probable that a liability has been incurred even though the amount of the loss cannot be reasonably estimated.
D)the amount of the loss can be reasonably estimated and it is probable prior to issuance of financial statements that a liability has been incurred.

Question 13

Analysis of a firm's balance sheet provides information on its liquidity,which is the ability to

A)satisfy short-term obligations.
B)maintain profitable operations.
C)maintain past levels of preferred and common dividends.
D)survive a major economic downturn.

Question 14

Unearned rent would normally appear on the balance sheet as a

A)plant asset.
B)current liability.
C)long-term liability.
D)current asset.

Question 15

Accrued revenues would normally appear on the balance sheet as

A)plant assets.
B)current liabilities.
C)long-term liabilities.
D)current assets.

Question 16

Which of the following would NOT be reported in the stockholders' equity section of the balance sheet?

A)Retained earnings appropriated for future plant expansion
B)Dividends declared on preferred stock
C)Paid-in capital in excess of par value
D)Deficit in retained earnings

Question 17

Which of the following circumstances would require recording an accrual for a loss contingency under current generally accepted accounting principles?

A)Event is unusual in nature and occurrence of event is probable
B)Event is unusual in nature and event occurs infrequently
C)Amount of loss is reasonably estimable and occurrence of event is probable
D)Amount of loss is reasonably estimable and event occurs infrequently

Question 18

Investment securities held for the purpose of retiring bonds should be classified on a balance sheet as

A)investments.
B)current assets.
C)deferred bond liability.
D)intangible assets.

Question 19

Which of the following characteristics may result in the classification of a liability as current?

A)Short-term obligations expected to be refinanced with long-term debt
B)Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets
C)Violation of provisions of a debt agreement
D)Obligations for advance collections that involve long-term deferment of the delivery of goods or services

Question 20

Which of the following best describes contributed capital?

A)The amount of capital provided by stockholders' investments
B)The amount that would be distributed to the stockholders in a liquidation of the corporation
C)The amount of capital provided by stockholders' investments and undistributed earnings
D)The value of the common and preferred stock

Question 21

Major Co.'s adjusted trial balance at December 31,2014,includes the following account balances:

What amount should Major report as total stockholders' equity in its December 31,2014,balance sheet?

A)$1,008,000
B)$1,032,000
C)$1,068,000
D)$1,092,000

Question 22

Hondo Co.has total debt of $252,000 and stockholders' equity of $420,000.Hondo is seeking capital to fund an expansion.Hondo is planning to issue an additional $180,000 in common stock,and is negotiating with a bank to borrow additional funds.The bank requires a maximum debt ratio of .75.What is the maximum additional amount Hondo will be able to borrow after the common stock is issued?

A)$639,000
B)$852,000
C)$1,236,000
D)$1,548,000

Question 23

The accounts and balances shown below were gathered from Pastel Corporation's trial balance on December 31, 2014. All adjusting entries have been made.

See information for Pastel Corporation above.Pastel Corporation's working capital is

A)$77,700.
B)$73,100.
C)$62,500.
D)$125,700.

Question 24

Songbird Corporation's trial balance included the following account balances at December 31,2014:

What amount should be included in the current liability section of Songbird's December 31,2014,balance sheet?

A)$135,000
B)$153,000
C)$195,000
D)$234,000

Question 25

The December 31,2014,balance sheet of Giorgio Inc.,reported total assets of $1,050,000 and total liabilities of $680,000.The following information relates to the year 2015:
•Madden Inc.issued an additional 5,000 shares of common stock at $25 per share on July 1,2015.
•Madden Inc.paid dividends totaling $80,000.
•Net income for 2015 was $110,000.
•No other changes occurred in stockholders' equity during 2015.
The stockholders' equity section of the December 31,2015,balance sheet would report a balance of

A)$400,000.
B)$685,000.
C)$525,000.
D)$835,000.

Question 26

The accounts and balances shown below were gathered from Pastel Corporation's trial balance on December 31, 2014. All adjusting entries have been made.

See information for Pastel Corporation above.The amount that should be reported as current liabilities on Pastel Corporation's balance sheet is

A)$73,200.
B)$91,800.
C)$87,200.
D)$238,800.

Question 27

The operating cycle

A)measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.
B)refers to the seasonal variations experienced by business enterprises.
C)should be used to classify assets and liabilities as current if it is less than one year.
D)cannot exceed one year.

Question 28

Which of the following generally is considered a limitation of the balance sheet?

A)The balance sheet reflects the current value of a business.
B)The balance sheet reflects the instability of the dollar.
C)Balance sheet formats and classifications do not vary to reflect industry differences.
D)Due to measurement problems, some enterprise resources and obligations are not reported on the balance sheet.

Question 29

The accounts and balances shown below were gathered from Primer Corporation's trial balance on December 31,2014.All adjusting entries have been made.

The amount that should be reported as current assets on Primer Corporation's balance sheet is

A)$151,300.
B)$164,900.
C)$217,300.
D)$267,300.

Question 30

Helena Co.began operations on January 1,2014,with $100,000 from the issuance of stock and borrowed funds of $15,000.Net income for 2014 was $5,000 and Helena paid a $400 cash dividend on December 15.No additional activities affected owners' equity in 2014.At December 31,2014,Helena's liabilities had increased to $18,800.In Helena's December 31,2014,balance sheet,total assets should be reported at

A)$119,600.
B)$120,000.
C)$123,400.
D)$138,400.

Question 31

Volta Electronics Inc.reported the following items on its December 31,2014,trial balance:

The amount that should be recorded on Volta's balance sheet as total liabilities is

A)$696,000.
B)$700,500.
C)$703,500.
D)$741,000.

Question 32

Information from Brian Company's balance sheet is as follows:

What is Brian's current ratio?

A)0.26 to 1
B)0.30 to 1
C)1.80 to 1
D)3.60 to 1

Question 33

Wolfe Co.was incorporated on July 1,2014,with $200,000 from the issuance of stock and borrowed funds of $30,000.During the first year of operations,net income was $10,000.On December 15,Wolfe paid an $800 cash dividend.No additional activities affected owners' equity in 2014.At December 31,2014,Wolfe's liabilities had increased to $37,600.In Wolfe's December 31,2014,balance sheet,total assets should be reported at

A)$239,200.
B)$240,000.
C)$246,800.
D)$276,800.

Question 34

Goddard Corporation's trial balance contained the following account balances at December 31,2014:

On Goddard's December 31,2014,balance sheet,the current assets total should be

A)$189,000.
B)$201,000.
C)$219,000.
D)$243,000.

Question 35

Which of the following statements best describes a subsequent event?

A)A subsequent event affects only subsequent reporting periods.
B)A subsequent event is, in some cases, reflected in the statements of the preceding period.
C)A subsequent event may occur any time after financial statements are issued.
D)A subsequent event is not covered by the independent auditor's report.

Question 36

The following changes in American Corporation's account balances occurred during 2014:

American paid dividends of $39,000 during the year.There were no changes in Retained Earnings for 2014 except dividends and net income.What was American's net income for 2014?

A)$12,000
B)$27,000
C)$39,000
D)$51,000

Question 37

Barron Co.'s current ratio is 2:1.Which of the following transactions would normally increase Barney's current ratio?

A)Purchasing inventory on account
B)Borrowing money by signing a long-term note
C)Collecting an account receivable
D)Purchasing land for cash

Question 38

The following data were taken from the financial statements of Howard Corporation for the year ended December 31,2014:

What was Howard's rate of return on assets for 2014?

A)5 percent
B)6 percent
C)20 percent
D)24 percent

Question 39

Hawk Corp.prepared a draft of its 2014 balance sheet.The draft statement reported current liabilities totaling $200,000.However,none of the following items were included in this preliminary total at December 31,2014:

At which amount should Hawk's current liabilities be correctly reported in the December 31,2014,balance sheet?

A)$230,000
B)$290,000
C)$296,000
D)$302,000

Question 40

Sonar Company prepared a draft of its 2014 balance sheet.The draft statement reported total assets of $437,500.Included in this total assets figure were the following items:

At which amount should Sonar' total assets be correctly reported in the December 31,2014,balance sheet?

A)$420,850
B)$421,300
C)$425,050
D)$425,500

Question 41

In a consolidated balance sheet,the minority interest is reported

A)as part of long-term liabilities.
B)between liabilities and stockholders' equity
C)as part of stockholders' equity.
D)as part of long-term assets.

Question 42

Treasury stock should be reported

A)as a current asset only if it will be sold within the next year or the operating cycle, whichever is longer.
B)as a current asset only if it will be sold within the next year or the operating cycle, whichever is shorter.
C)in the Investments and Funds section of the balance sheet.
D)as a deduction from total stockholders' equity on the balance sheet.

Question 43

The balance sheet category receivables represents claims to cash.Accounts receivable typically constitutes the largest dollar value of receivables.An estimated allowance for doubtful accounts should be deducted from the gross amount of accounts receivable to arrive at the estimated amount collectible.Plant assets are reported on the balance sheet at their historical cost less any accumulated depreciation.The allowance for doubtful accounts and accumulated depreciation are both termed contra-asset accounts.Which of the following statements regarding these two contra-asset accounts is true?

A)Both result in the valuation of their related asset account at net realizable value.
B)Accumulated depreciation deducted from the related asset account shows the unallocated portion of the historical cost of the related asset.
C)Accumulated depreciation deducted from the related asset account shows the net realizable value of the related asset.
D)Accumulated depreciation deducted from the related asset account shows the current replacement cost of the related asset.

Question 44

An operating cycle

A)is twelve months or less in length.
B)is the average time required for a company to collect its receivables.
C)is used to determine current assets when the operating cycle is longer than one year.
D)starts with inventory and ends with cash.

Question 45

A general principle of disclosure is that material related-party transactions should be disclosed.As the auditor of the Clarence Company,you have noted the following transactions entered into by Clarence during the past fiscal year:
I)Clarence borrowed $1,000,000 from the Southwest Bank issuing a noninterest-bearing note.
II)Clarence borrowed $2,000,000 from BH Savings at a rate significantly above the market rate prevailing at that time for such a borrowing.
III)Clarence borrowed $500,000 from First Bank with no scheduled terms for how or when funds will be repaid.
Assuming all of the above transactions are material,which transaction or transactions above most likely would be a related party transaction requiring disclosure in Clarence's financial statements?

A)Only I above.
B)Both II and III above.
C)Both I and III above.
D)Only III above.

Question 46

See Laramie Corporation information above.The amount reported on Laramie Corporation's December 31,2015,balance sheet as stockholders' equity was

A)$400,000.
B)$550,000.
C)$950,000.
D)$963,000.

Question 47

The term "deficit" refers to

A)an excess of current assets over current liabilities.
B)an excess of current liabilities over current assets.
C)a debit balance in Retained Earnings.
D)a loss that is reported as a prior period adjustment.

Question 48

See Laramie Corporation information above.The amount reported on Laramie Corporation's December 31,2015,balance sheet as additional paid-in capital was

A)$400,000.
B)$550,000.
C)$563,000.
D)$950,000.

Question 49

Which of the following items is usually classified as a noncurrent asset?

A)Prepaid rent
B)Plant expansion fund
C)Supplies
D)Goods that are in the process of being completed for another company

Question 50

Which of the following statements regarding intangible assets is NOT correct?

A)Intangible assets represent long-term rights and privileges of a nonphysical nature.
B)Intangible assets should be amortized over a period not to exceed 40 years.
C)Intangible assets must be tested regularly to determine if their value has been impaired.
D)A trademark is an example of an intangible asset.

Question 51

Which item describes whether the following accounts would be included in the calculation of the acid-test (quick)ratio?

Question 52

The disclosure of accounting policies

A)may describe policies that are peculiar to the reporting company's industry.
B)should not appear in the notes to the financial statements.
C)should not describe unusual or innovative applications of GAAP.
D)is encouraged but not required.

Question 53

Which of the following items would normally be excluded from the computation of working capital?

A)Advances from customers for goods that will be shipped three months after the balance sheet date
B)The portion of long-term debt that matures six months after the balance sheet date and will be paid from the regular cash account
C)Prepaid insurance
D)Cash surrender value of life insurance

Question 54

What is the effect of the collection of accounts receivable on the current ratio and net working capital,respectively?

Question 55

Information from Osborne Company's balance sheet is as follows: Current assets:

What is Osborne's acid-test (quick)ratio?

A)0.26 to 1
B)0.30 to 1
C)1.80 to 1
D)3.60 to 1

Question 56

Which of the following is an appropriate computation for return on investment?

A)Net income divided by sales
B)Net income divided by total assets
C)Sales divided by total assets
D)Sales divided by stockholders' equity

Question 57

Which of the following is not true regarding reserves that appear in the equity section of the balance sheet of foreign companies?

A)Reserves represent cash set aside to fund capital projects.
B)Reserves are different categories found in the equity section of the balance sheet.
C)The balances in reserve accounts can affect an entity's legal ability to pay cash dividends.
D)An extensive description of each reserve shown on the balance sheet is provided.

Question 58

The following information is provided for Rodriguez Enterprises.(Amounts in $1,000's)
Required:
Compute the ratios listed below for years 2013 and 2014 and determine which year had the most favorable ratios.Show supporting computations.
a. Current ratio
b. Quick ratio
c. Debt ratio
d. Asset mix

Question 59

In relation to a set of 2015 basic financial statements,a subsequent event is one that

A)occurs before the 2015 financial statements are issued.
B)involves uncertainty as to possible gain or loss that will ultimately be resolved in 2016 or later.
C)occurs after the 2015 financial statements are issued.
D)requires an appropriate adjusting entry to be made as of the end of 2015.

Question 60

Southeast Company's adjusted trial balance at December 31,2015,includes the following account balances:

What amount should Southeast report as total owners' equity in its December 31,2015,balance sheet?

A)$840,000
B)$860,000
C)$890,000
D)$910,000

Question 61

The following totals are taken from the December 31,2015,balance sheet of Mentor Company:

Additional information:
(a)Cash of $38,000 has been placed in a fund for the retirement of long-term debt.The cash and long-term debt have been offset and are not reflected in the financial statements.
(b)Long-term assets include $50,000 in treasury stock.
(c)Cash of $14,000 has been set aside to pay taxes due.The cash and taxes payable have been offset and do not appear in the financial statements.
(d)Advances on salespersons' commissions in the amount of $21,000 have been made.Also,sales commissions payable total $24,000.The net liability of $3,000 is included in Current Liabilities.
After making any necessary changes,what are the totals for Mentor's current assets and current liabilities?

Question 62

McCallister,Inc.,a nonpublic enterprise,is negotiating a loan for expansion purposes and the bank requires audited financial statements.Before closing the accounting records for the year ended December 31,2015,McCallister' controller prepared the following comparative financial statements for 2015 and 2014:


During the audit,the following additional information was obtained:
(a)The investment portfolio consists of investments in trading securities with a total market value of $156,000 at December 31,2015.The securities were purchased February 3,2015,at a cost of $142,000.
(b)As a result of errors in physical count,inventories were overstated by $30,000 at December 31,2015.
(c)On January 2,2015,the cost of equipment purchased for $80,000 was mistakenly charged to repairs and maintenance.McCallister depreciates this type of equipment over a 5-year life using the straight-line method,with no residual or salvage value.
(d)McCallister was named as a defendant in a lawsuit in October 2015.McCallister' counsel is of the opinion that McCallister has a good defense and does not anticipate any impairment of McCallister' assets or that any significant liability will be incurred.However,McCallister' counsel admits that loss of the suit is "possible." McCallister' management wished to be conservative and established a loss contingency of $200,000 at December 31,2015.
(e)On January 24,2016,before the 2015 financial statements were issued,McCallister was notified that one of its largest customers had filed for bankruptcy as the result of a flood that destroyed a substantial portion of the company's assets on January 16,2016.The customer's accounts receivable balance at December 31,2015,was $144,000.
(f)$100,000 of 5-year notes payable will mature September 30,2016.In view of McCallister' plans for expansion,management is seriously considering refinancing the notes when they become due.
(1)Prepare a properly classified balance sheet for McCallister,Inc.,as of December 31,2015.(Income tax considerations should be ignored.)(2)Identify the events and other information that should be disclosed in the notes to McCallister' financial statements.(Do not prepare the notes.)

Question 63

Heartland Company reported liabilities totaling $1,230,000 as of December 31,2014.The following information relates to those liabilities:
(a)Heartland reported a $100,000 bank loan payable.However,Heartland intends to repay this loan on January 10,2015.
(b)Heartland has reported a $40,000 liability for the estimated cost of future warranty repairs based on product sales for the past year.
(c)Heartland is being sued for $350,000 by a disgruntled employee.Heartland's attorney thinks that it is possible that Heartland will lose the case.Heartland has not yet recorded any liability for this potential loss.
(d)Heartland receives consulting services from a local CPA.Expected services by the CPA for the coming year will cost $35,000.No liability has been recorded.
(e)Heartland has reached an agreement with a major customer.Heartland expects to provide services totaling $400,000 over the coming three years.The customer has already paid Heartland $100,000.No liability has been recorded.
After considering these items,what should be the total of Heartland' reported liabilities?

Question 64

Bowman Company reported assets totaling $870,000 as of December 31,2014.The following information relates to those assets:
(a)Tristan Labs,a rival company,recently offered to give a $100,000 signing bonus to the head of Bowman's fabrication department if she would leave Bowman and join Breakstone.She declined.Bowman has consequently recorded a long-term asset,"Employees Under Contract," for $100,000.
(b)Bowman purchased a patent from a small research firm for $75,000.Subsequent research has shown that the patented technology doesn't work as well as originally thought and the technology actually has no economic use.Bowman reports the patent at its amortized cost of $60,000.
(c)An independent appraiser recently set Bowman's market value at $500,000.This exceeded the book value of equity by $120,000.Accordingly,Bowman recorded Goodwill totaling $120,000.
(d)Near the end of the year,Bowman paid $30,000 for the exclusive right to market electronic equipment to be imported from abroad.Bowman reported this as a $30,000 "Intangible Asset."
(e)When Bowman started business three years ago,it was required to deposit $5,000 with the local electric utility.The deposit is refundable if Bowman cancels its electric service.Bowman earns no interest on the deposit.The deposit is recorded as an "Other Long-Term Asset."
After considering the items above,what should be the total of Bowman's reported assets?

Question 65

Knowledgeable users of financial statements recognize that the numbers reported in a company's financial statements depend on the accounting policies used to generate the numbers.Various choices of accounting policies exist,such as LIFO vs.FIFO for inventory costing and straight-line vs.double-declining balance for depreciation.APB Opinion No.22 requires that a company disclose the accounting policies used to ensure that statement users have the information they need to make sound decisions.
What problems arise from the large variety of accounting choices available?

Question 66

Certain assets currently are omitted from the balance sheet.For example,the value of the human resources of the firm are not reported.Nevertheless,investors and others might greatly benefit from a knowledge of the extent to which human assets have increased or decreased during a given period.Values certainly may be attributed to individuals or groups based on their ability to render future economic services.A major issue is the method that should be employed in measuring human assets.
Identify some possible ways of measuring human resources.

Question 67

The following totals are taken from the December 31,2014,balance sheet of Roanoke Company:

Additional information:
(a)A building costing $100,000 was purchased by taking out a $100,000 mortgage.Since the building serves as collateral on the mortgage loan,both have been excluded from the financial statements.
(b)Cash in the amount of $45,000 is in a restricted fund for the purchase of equipment.This cash has been included in Current Assets.
(c)Long-term liabilities include a bank loan of $80,000.Of this loan,$15,000 must be repaid within the coming year.
(d)Investment securities totaling $27,000 are included in Current Assets.These securities represent stock purchases made as a long-term equity investment in a major supplier.
After making any necessary changes,what are the totals for Roanoke's long-term assets and long-term liabilities?

Question 68

You have just joined the public accounting firm of Johnson,Boyd,and Winters upon graduating from the University of High Numbers.You are assigned to the audit of the Wild Notes Company,a manufacturer of electronic musical instruments.Part of your responsibility on the audit will be the examination of the property,plant,and equipment of the client.
Required:
Use your knowledge of financial statements plus your experience in your principles of accounting course to develop a list of questions regarding property,plant,and equipment you feel you should answer as an independent auditor in order to ensure that the statements provide relevant and reliable information to the users of Wild Notes Company's financial statements.

Question 69

The balance sheet provides information concerning liquidity,financial flexibility,and information for calculating various financial ratios.The balance sheet serves as a major indicator of an enterprise's ability to survive.Nevertheless,the analysis of the balance sheet should be approached with a clear understanding of the limitations of the statement.
What are the major limitations of the balance sheet that should be recognized in analyzing the statement?

Question 70

As a member of the audit staff of Redman & Co.,CPAs,you have been assigned to the audit of a new client,Auburn Corporation.Upon arriving at the client's offices,the controller provides you with copies of the company's annual financial statements.You quickly observe that the balance of accounts receivable has increased materially over the amount reported on the prior year's balance sheet.Your inquiry of the controller produces the following response:
"This year we have included several other items with our trade receivables.All of these items represent receivables and include:
(a)Advances made to officers and employees,
(b)Advances to our subsidiary company,and
(c)A refund from the Internal Revenue Service resulting from the favorable resolution of a disputed tax matter.
I have included a description of the tax item in the note to the financial statements.Since the other two items represent internal matters,I saw no reason to disclose them or present them as separate items on the balance sheet."
Do you concur with the controller's treatment of these items? Explain.

Question 71

The following balance sheet was prepared by the accountant for Lawnwood Farms Corp.:

Additional information:
(a)Cash is held in a checking account and a savings account with balances of $69,450 and $202,050,respectively.The cash in the savings account will be used to support operations in the event of a crop failure.
(b)A loan to the president for $180,000 that is to be repaid in quarterly installments of $15,000 is included in "Accounts receivable." Other accounts receivable are considered to be 95 percent collectible.
(c)
(d)"Land,buildings,and equipment" includes 5 tractors that were purchased near the end of the year for $360,000 (shown net of a $300,000,5-year loan used to buy the tractors).The balance of the account consists of land that was purchased for $1,200,000 and buildings that were purchased for $255,000 (shown net of depreciation of $63,000).
(e)Included in "Accounts payable" are $105,000 of advances from customers for delivery of goods in August of the next year.
(f)The company has 90,000 shares of $5 par common stock issued and outstanding.The common stock was originally sold for $7 per share,and the premium was included in "Retained earnings."
(g)After reading a U.S.Meteorological Service report,the president believes that next year will be a bad crop year due to freak hailstorms and estimates the company will lose about $360,000.An appropriation of Retained Earnings has been made for this amount.
Using the balance sheet and the additional information,prepare a properly classified and corrected balance sheet.

Question 72

Account balances and supplemental information for the Alain Corporation as of December 31,2015,are given below:

(a)$300,000 of 12% bonds were sold on November 1,2015,at par.
(b)40,000 shares of $30 par value common stock were sold for $1,560,000.
(c)All the equipment was purchased on January 2,2014.The depreciation rate is 10 percent per year.
(d)5 percent of accounts receivable are expected to be uncollectible.
(e)A two-year insurance policy was purchased on May 1,2015,for $7,200.
(f)Accrued interest on $150,000 of short-term notes receivable from customers was $5,100 at December 31,2015.
(g)$120,000 was borrowed from the bank on a 5-year,10% note payable dated July 1,2015.The loan is to be repaid in 10 semiannual payments of $12,000 plus interest,with the first payment due January 1,2016.
Prepare a properly classified balance sheet in report form for Alain Corporation as of December 31,2015.

Question 73

Audition and Co.,CPAs,has just been retained by the Sullivan Company to audit Sullivan's financial statement for the last fiscal year.Sullivan Company shows substantial amounts of inventory on its balance sheet.
Alex Rodriguez has just joined the staff of Audition and Co.and has been assigned to assist in the audit of Sullivan's inventory.
Required:
Identify the major issues regarding the inventory of Sullivan Company that Alex needs to consider in determining if Sullivan has properly accounted for and reported its inventory.

Question 74

Below are selected accounts and their balances for the Beehive Company as of December 31,2015:

Based on the above information,determine the amount of working capital at December 31,2015.