Intermediate accounting ” 9 questions”

1—Balance sheet computations.

(Balance Sheet) Presented below is the trial balance of Hightower Corporation at December 31, 2017.

 

   Debit   

   Credit   

Cash

295,000

 

Sales Revenue

 

$12,150

Debt Investments (trading) (at cost, $218,000)

230,000

 

Cost of Goods Sold

7,200

 

Debt Investments (long-term)

448,000

 

Equity Investments (long-term)

416,000

 

Notes Payable (short-term)

 

135,000

Accounts Payable

 

682,000

Selling Expenses

3,000,000

 

Investment Revenue

 

95,000

Land

390,000

 

Buildings

1,560,000

 

Dividends Payable

 

204,000

Accrued Liabilities

 

144,000

Accounts Receivable

652,000

 

Accumulated Depreciation–Buildings

 

228,000

Allowance for Doubtful Accounts

 

38,000

Administrative Expenses

1,350,000

 

Interest Expense

317,000

 

Inventory

895,000

 

Gain

 

120,000

Notes Payable (long-term)

 

1,350,000

Equipment

900,000

 

Bonds Payable

 

1,500,000

Accumulated Depreciation–Equipment

 

90,000

Franchises

240,000

 

Common Stock ($5 par)

 

1,500,000

Treasury Stock

287,000

 

Patents

293,000

 

Retained Earnings

 

117,000

Paid-in Capital in Excess of Par

               

  120,000

Totals

  $18,473,000

  $18,473,000

Instructions

Compute each of the following:

1.   Total current assets

2.   Total property, plant, and equipment

3.   Total assets

4.   Total liabilities

5.   Total stockholders’ equity

 

2—Statement of cash flows.

A comparative balance sheet for Talkington Corporation is presented below.

 

December 31

Assets

    2017    

 

    2016    

Cash

 

 

 

Accounts receivable

$  68,100

 

$  21,600

Inventory

82,800

 

33,000

Land

170,200

 

83,800

Equipment

71,400

 

74,000

Accumulated depreciation–equipment

280,500

 

212,400

Total

(74,000)

 

(42,000)

 

$597,000

 

$545,000

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Accounts payable

$ 34,000

 

$ 47,000

Bonds payable

150,000

 

200,000

Common stock ($1 par)

164,000

 

164,000

Retained earnings

249,000

 

134,000

Total

$597,000

 

$545,000

Additional information:

1.   Net income for 2017 was $155,000; there were no gains or losses.

2.   Cash dividends of $400,000 were declared and paid.

3.   Bonds payable of $50,000 were retired.

Instructions:

Compute each of the following:

1.   Net cash provided by operating activities

2.   Net cash provided (used) by investing activities

3.   Net cash provided (used) by financing activities

  

3—Statement of cash flows ratios.

Financial statements for Hilton Company are presented below:

Hilton Company

Balance Sheet

December 31, 2017

                        Assets                                                            Liabilities & Stockholders’ Equity

Cash                                                    $ 40,000            Accounts payable               $ 20,000

Accounts receivable                             35,000            Bonds payable                       50,000

Buildings and equipment                   150,000          Common stock                       65,000

Accumulated depreciation—                                       Retained earnings                 60,000

     buildings and equipment               (50,000)                                                        $195,000

Patents                                                    20,000           

                                                             $195,000                                                                          

 

 

 

Hilton Company

Statement of Cash Flows

For the Year Ended December 31, 2017

Cash flows from operating activities

         Net income                                                                                                            $50,000

         Adjustments to reconcile net income to net cash

              provided by operating activities:

                     Increase in accounts receivable                                $(16,000)

                     Increase in accounts payable                                          8,000

                     Depreciation—buildings and equipment                    15,000

                     Gain on sale of equipment                                              (6,000)

                     Amortization of patents                                                     2,000                 3,000

Net cash provided by operating activities                                                                   53,000

Cash flows from investing activities

         Sale of equipment                                                                       12,000

         Purchase of land                                                                         (25,000)

         Purchase of buildings and equipment                                   (48,000)

Net cash used by investing activities                                                                          (61,000)

Cash flows from financing activities

         Payment of cash dividend                                                         (15,000)

         Sale of bonds                                                                               30,000

Net cash provided by financing activities                                                                    15,000

Net increase in cash                                                                                                          7,000

Cash, January 1, 2017                                                                                                   33,000

Cash, December 31, 2017                                                                                          $40,000

 

At the beginning of 2017, Accounts Payable amounted to $12,000 and Bonds Payable was $20,000.

 

Instructions

Calculate the following for Hilton Company:

a.   Current cash debt coverage

b.   Cash debt coverage

c.   Free cash flow

d.   Explain the purpose of free cash flow analysis.

 

4—Sales with returns and discounts.

On July 2, 2018, Lake Company sold to Sue Black merchandise having a sales price of $9,000 (cost $5,400) with terms of 2/10. n/30. f.o.b. shipping point. Lake estimates that merchandise with a sales value of $900 will be returned. An invoice totaling $120, terms n/30, was received by Black on July 6 from Pacific Delivery Service for the freight cost. Upon receipt of the goods, on July 3, Black notified Lake that $350 of merchandise contained flaws. The same day, Lake issued a credit memo covering the defective merchandise and asked that it be returned at Lake’s expense. Lake estimates the returned items to have a fair value of $140. The freight on the returned merchandise was $20 paid by Lake on July 7. On July 12, the company received a check for the balance due from Black.

 

Instructions

(a)Prepare journal entries for Lake Company to record all the events noted above assuming sales and receivables are entered at gross selling price.

(b)  Prepare the journal entry assuming that Sue Black did not remit payment until August 5.

  

5—Warranty arrangement.

On December 31, 2017, Dieker Company sells equipment to Tabor Inc. for $125,000. Dieker includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2017. Dieker estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty.

 

Instructions

(a)   Prepare the journal entry to record this transaction on December 31, 2017.

(b)   Repeat the requirements for (a), assuming that in addition to the assurance warranty, Dieker sold an extended warranty (service type warranty) for an additional 2 years (2019–2020) for $2,000. 

 

6—Percentage-of-completion and completed-contract methods.

On February 1, 2017, Marsh Contractors agreed to construct a building at a contract price of $17,400,000. Marsh estimated total construction costs would be $12,000,000 and the project would be finished in 2019. Information relating to the costs and billings for this contract is as follows:

                                                                             2017                     2018                    2019   

Total costs incurred to date                     $4,500,000         $7,920,000       $13,800,000

Estimated costs to complete                     7,500,000            5,280,000                     -0-

Customer billings to date                           6,600,000         12,000,000         16,800,000

Collections to date                                      6,000,000         10,500,000         16,500,000

Instructions

Fill in the correct amounts on the following schedule. For percentage-of-completion accounting and for completed-contract accounting, show the gross profit that should be recorded for 2017, 2018, and 2019.

                        Percentage-of-Completion                          Completed-Contract

                                    Gross Profit                                                Gross Profit

            2017             _________                            2017            _________

 

            2018             _________                            2018            _________

 

            2019             _________                            2019            _________

 

 

  

7—Franchises.

Pasta Inn charges an initial fee of $2,400,000 for a franchise, with $480,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 10%, is $1,521,000. The franchisee has the right to purchase $90,000 of kitchen equipment and supplies for $75,000. An additional part of the initial fee is for advertising to be provided by Pasta Inn during the next five years. The value of the advertising is $1,000 a month. Collectibility of the payments is reasonably assured and Pasta Inn has performed all the initial services required by the contract.

 

Instructions

Prepare the entry to record the initial franchise fee. Show supporting computations in good form.

 

8—Future value of annuity.  (Tables needed.)

Linda Ogleby wants to accumulate $40,000 to use for an around the world trip. She plans to accumulate the desired amount by depositing $5,500 annual-year-end payments into an account at the National Bank which pays 4% interest, compounded annually.

 

1.   Compute the account balance at the end of the sixth year.

2.   Compute the amount of each payment that Linda must make at the end of each of the six years to accumulate the $40,000.

 

 

9-—Entries for bad debt expense.

A trial balance before adjustment included the following:

                                                                                                  Debit           Credit 

            Accounts receivable                                          $140,000

            Allowance for doubtful accounts                                                       730

            Sales                                                                                            $610,000

            Sales returns and allowances                                8,000

 

Give journal entries assuming that the estimate of uncollectible accounts is determined by taking (1) 5% of gross accounts receivable and (2) 3% of gross accounts receivable and assume a $730 debit allowance account balance.

 

 

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