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Grading: This problem is worth a total of 18.75 points. There are 22grading elements each worth 18.75 x 2/3 / 22= 0.5682 points. There are 18.75 x 1/3 = 6.25 points available for effort.
The FJF Company does not employ a full-time accountant. However they do employ a bookkeeper that records entries and attempts to prepare drafts of financial statements. You have been retained by the company to review the bookkeeper’s work and prepare correct financial statements for 2014. You have completed your review of the bookkeeper’s work and, based upon your review, the bookkeeper has prepared the following draft balance sheet for your review.
For the year ended December 31, 2014
Stockholders’ s equity
Common stock, $9 par, authorized 70,000
shares, Issued 48,000 shares $432,000
Additional paid-in capital 237,000
Prepaid expenses 18,000
Cash surrender value of life insurance 133,000
Trading securities at cost (fair value $177,000) 207,000
Property, plant, and equipment
Land held for future use 259,000
Building (net) 843,000
Office equipment (net) 237,000
Accounts receivable (net) 503,000
Inventories at lower of average cost or market 593,000
Accounts payable 200,000
Notes payable (due next year) 185,000
Pension obligation 121,000
Rent payable 72,000
Premium on bonds payable 78,000
Bonds payable 739,000
The company ends its fiscal accounting year on December 31.
The accumulated depreciation on the building totals $237,000.
The accumulated depreciation on the office equipment totals $155,000.
The allowance for doubtful accounts has a balance of $25,000.
The pension obligation is considered a long-term liability.
The bookkeeper did not know how to compute retained earnings.
Prepare a correct balance sheet is good form.
Grading: This problem is worth a total of 18.75 points. There are 24grading elements each worth 18.75 x 2/3 / 24 = 0.5208 points. There are 18.75 x 1/3 = 6.25 points available for effort.
The WLO Company has prepared the following trial balance as of the end of its fiscal accounting year on December 31, 2013.
Accounts Payable $539,000
Accounts Receivable $516,000
Accrued Liabilities 114,000
Accumulated Depreciation – Buildings 180,000
Accumulated Depreciation –Equipment 71,000
Additional Paid-in Capital 95,000
Administrative Expenses 1,067,000
Allowance for Doubtful Accounts 30,000
Bonds Payable 1,185,000
Common Stock ($1 par) 1,185,000
Cost of Goods Sold 5,689,000
Dividends Payable 161,000
Extraordinary Gain 95,000
Interest Expense 250,000
Investment Revenue 75,000
Long-term Investments in Bonds 354,000
Long-term Investments in Stocks 328,000
Long-term Notes Payable 1,067,000
Retained Earnings 91,000
Selling Expenses 2,370,000
Short-term Notes Payable 107,000
Trading Securities 181,000
Treasury Stock 226,000
Ignoring income taxes, prepare a balance sheet in good form as of December 31, 2013.
Grading: This problem is worth a total of 18.75 points. There are 11grading elements each worth 18.75 x 2/3 / 11 = 1.1364 points. There are 18.75 x 1/3 = 6.25 points available for effort.
Consider each of the following independent post –balance-sheet events (subsequent events) related to the ILJ Company.
1. The ILJ Company was sued by a competitor in a prior year for trademark infringement. The suit is now settled.
2. A large customer of the ILJ Company, representing 10% of ILJ Company’s annual revenues, cancelled their contract with the ILJ Company.
3. The ILJ Company was in litigation with the Internal Revenue Service concerning a tax matter related to a previous year’s income tax return. The matter was settled at a cost significantly in excess of the amount expected at year-end.
4. The ILJ Company sold one of its factories representing approximately 30% of its total assets.
5. The ILJ Company merged with the NYP Company. Both companies were approximately the same size prior to the merger.
6. A large customer of the ILJ Company filed for bankruptcy resulting in a significant loss on the year-end accounts receivables.
7. The ILJ Company launched a new product line.
8. The ILJ Company experienced an extended strike by its employees.
9. The ILJ Company hired a new president to replace the prior president that retired.
10. The ILJ Company experienced a fire at an administrative office. The building was a total loss.
11. The ILJ Company issued 100,000 shares of common stock increasing the total number of shares outstanding to 250,000.
Each of the events occurred after the date of the balance sheet but before the financial statements were issued.
For each of the above events, indicate the action ILJ Company should take to report the event to their shareholders and other users of their financial statements. Should ILJ Company:
A: Adjust the financial statements to be issued.
B: Disclose the event in the notes to the financial statements to be issued.
C: Neither adjust nor disclose the event in the financial statements to be issued.
Grading: This problem is worth a total of 18.75 points. There are 7grading elements each worth 18.75 x 2/3 / 7 = 1.7857 points. There are 18.75 x 1/3 = 6.25 points available for effort.
Consider the following balance sheets from two companies, the GYF Company and the AIT Company.
GYF Company AIT Company
Cash $96,000 $256,000
Receivables 176,000 241,000
Inventories 457,000 414,000
Total current assets $729,000 $911,000
Other assets 401,000 489,000
Total assets $1,130,000 $1,400,000
Liabilities and Stockholders’ Equity
Current liabilities $244,000 $280,000
Long-term liabilities 321,000 400,000
Capital stock and retained earnings 565,000 720,000
Total liabilities and stockholders’ equity $1,130,000 $1,400,000
Annual sales $745,000 $1,199,000
Rate of gross profit on sales 30.00% 40.00%
As a bank loan officer, it is your responsibility to evaluate loan application. Both companies are applying for a short-term loan. Using the above information and applicable ratio analysis, determine which company is the better credit risk and why.
Include the computations of the appropriate ratios used in your analysis.