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Week 3 Practice Question Solutions
EXERCISE 5-2 (15–20 minutes)
1.
h
11.
b
2.
d
12.
f
3.
f
13.
a
4.
f
14.
h
5
c
15.
c
6.
a
16.
b
7.
f
17.
a
8.
g
18.
a
9.
a
19.
g
10.
a
20.
f
E5-2 (Classification of Balance Sheet Accounts) Presented below are the captions of Faulk Company’s balance sheet. (a) Current assets. (b) Investments. (c) Property, plant, and equipment. (d) Intangible assets. (e) Other assets. (f) Current liabilities. (g) Noncurrent liabilities.
(h) Capital stock. (i) Additional paid-in capital. (j) Retained earnings. Instructions Indicate by letter where each of the following items would be classified. 1. Preferred stock – (h) Capital stock. 2. Goodwill. - (d) Intangible assets. 3. Salaries and wages payable. - (f) Current liabilities. 4. Accounts payable. - (f) Current liabilities. 5. Buildings. - (c) Property, plant, and equipment. 6. Equity investments (trading). - (a) Current assets. 7. Current maturity of long-term debt. (f) Current liabilities. 8. Premium on bonds payable. - (g) Noncurrent liabilities. 9. Allowance for doubtful accounts. - (a) Current assets. 10. Accounts receivable. - (a) Current assets. 11. Cash surrender value of life insurance. - (b) Investments. 12. Notes payable (due next year). - (f) Current liabilities. 13. Supplies. - (a) Current assets. 14. Common stock. (h) Capital stock. 15. Land. - c) Property, plant, and equipment. 16. Bond sinking fund. - (b) Investments. 17. Inventory. - (a) Current assets. 18. Prepaid insurance. - (a) Current assets. 19. Bonds payable. - (g) Noncurrent liabilities. 20. Income taxes payable. - (f) Current liabilities.
EXERCISE 5-3 (15–20 minutes)
1.
a
10.
f
2.
b
11.
a
3.
f
12.
f
4.
a
13.
a or e (preferably a)
5
f
14.
c and N
6.
h
15.
f
7.
I
16.
X
8.
d
17.
f
9.
a
18.
c
E5-3 (Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet. (a) Current assets. (b) Investments. (c) Property, plant, and equipment. (d) Intangible assets. (e) Other assets. (f) Current liabilities. (g) Long-term liabilities. (h) Capital stock.
(i) Paid-in capital in excess of par. (j) Retained earnings. Instructions Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter ―N‖ to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter ―X.‖ 1. Prepaid insurance. - (a) Current assets. 2. Stock owned in affiliated companies. (b) Investments. 3. Unearned service revenue. - (f) Current liabilities. 4. Advances to suppliers. - (a) Current assets. 5. Unearned rent revenue. - (f) Current liabilities. 6. Preferred stock. (h) Capital stock. 7. Additional paid-in capital on preferred stock. - (i) Paid-in capital in excess of par. 8. Copyrights. - (d) Intangible assets. 9. Petty cash fund. - (a) Current assets. 10. Sales taxes payable. - (f) Current liabilities. 11. Accrued interest on notes receivable. - (a) Current assets 12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.) - (f) Current liabilities. 13. Machinery retired from use and held for sale. - a or e (preferably a) e: Other assets. 14. Fully depreciated machine still in use. - (c) Property, plant, and equipment & N. 15. Accrued interest on bonds payable. - (f) Current liabilities 16. Salaries that company budget shows will be paid to employees within the next year. X 17. Discount on bonds payable. (Assume related to bonds payable in item 12.) (f) Current liabilities
18. Accumulated depreciation—buildings. (c)
Property, plant, and equipment.
19. Noncontrolling interest.
EXERCISE 5-14 (25–35 minutes)
Constantine Cavamanlis Inc. Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities Net income ............................................................
$44,000
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense .....................................
$ 6,000
Increase in accounts receivable ....................
(3,000)
Increase in accounts payable ........................
5,000
Net cash provided by operating activities ..........
8,000 52,000
Cash flows from investing activities Purchase of equipment ........................................
(17,000)
Cash flows from financing activities Issuance of common stock ..................................
20,000
Payment of cash dividends ..................................
(23,000)
Net cash used by financing activities..................
(3,000)
Net increase in cash ...................................................
32,000
Cash at beginning of year ..........................................
13,000
Cash at end of year .....................................................
$45,000
PROBLEM 5-3
EASTWOOD COMPANY Balance Sheet December 31, 2014 Assets Current assets Cash ........................................................
$ 41,000
Accounts receivable .............................. $163,500 Less: Allowance for doubtful accounts ................................
8,700
154,800
Inventory (LIFO cost) .............................
208,500
Prepaid insurance ..................................
5,900
Total current assets .........................
$ 410,200
Long-term investments Equity investments ($120,000 have been pledged as security for notes payable)— 339,000
at fair value ..........................................
Property, plant, and equipment Cost of uncompleted plant facilities Land ..................................................
85,000
Construction in process (building).......................................
124,000
Equipment ..............................................
400,000
Less: Accum. depreciation— equipt. ....................................
240,000
209,000
160,000
369,000
Intangible assets Patents (less $4,000 amortization) ........
36,000
Total assets ......................................
$1,154,200
PROBLEM 5-3 (Continued) Liabilities and Stockholders’ Equity Current liabilities Notes payable (secured by investments of $120,000) ...................
$ 94,000
Accounts payable ................................
148,000
Accrued liabilities ................................
49,200
Total current liabilities ...................
$ 291,200
Long-term liabilities 8% bonds payable, due January 1, 2025 .................................
200,000
Less: Discount on bonds payable .....
20,000
Total liabilities ................................
180,000 471,200
Stockholders’ equity Common stock Authorized 600,000 shares of $1 par value; issued and outstanding, 500,000 shares ........ $500,000 Paid in capital in excess of par—common stock......................... Retained earnings ................................ Total liabilities and stockholders’ equity ...................
45,000
545,000 138,000
683,000 $1,154,200
